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Corruption and Firm Performance in Africa

Author

Listed:
  • John McArthur

    (Centre for the Study of African Economies)

  • Francis Teal

    (Centre for the Study of African Economies)

Abstract

This paper uses survey data to investigate empirically the importance of corruption in determining firm performance in Africa. We allow for the possibility of perception bias on the part of the respondents and for corruption being endogenous. We find that corruption is linked to significant adverse effects on firm performance in two ways. At the firm (or “local”) level, companies that pay bribes have 20 percent lower levels of output per worker. At the economy-wide ( or “global”) level, firms in countries with pervasive corruption are some 70 per cent less efficient than firms in countries free of corruption. We thus provide evidence that competitive uncoordinated local corruption has substantial global effects.

Suggested Citation

  • John McArthur & Francis Teal, 2004. "Corruption and Firm Performance in Africa," Development and Comp Systems 0409050, EconWPA.
  • Handle: RePEc:wpa:wuwpdc:0409050
    Note: Type of Document - pdf; pages: 32
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    References listed on IDEAS

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    1. Jan Willem Gunning & Paul Collier, 1999. "Explaining African Economic Performance," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 64-111, March.
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    3. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
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    6. Kaufman, Daniel & Shang-Jin Wei, 1999. "Does"grease money"speed up the wheels of commerce?," Policy Research Working Paper Series 2254, The World Bank.
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    9. Shang-Jin Wei & Yi Wu, 2002. "Negative Alchemy? Corruption, Composition of Capital Flows, and Currency Crises," NBER Chapters,in: Preventing Currency Crises in Emerging Markets, pages 461-506 National Bureau of Economic Research, Inc.
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    14. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
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    Cited by:

    1. Elizabeth Asiedu & James Freeman, 2009. "The Effect of Corruption on Investment Growth: Evidence from Firms in Latin America, Sub-Saharan Africa, and Transition Countries ," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 200-214, May.
    2. Vial, Virginie & Hanoteau, Julien, 2010. "Corruption, Manufacturing Plant Growth, and the Asian Paradox: Indonesian Evidence," World Development, Elsevier, vol. 38(5), pages 693-705, May.
    3. Kalu Ojah & Tendai Gwatidzo & Sheshangai Kaniki, 2010. "Legal Environment, Finance Channels and Investment: The East African Example," Journal of Development Studies, Taylor & Francis Journals, vol. 46(4), pages 724-744.
    4. Humphry Hung, 2008. "Normalized Collective Corruption in a Transitional Economy: Small Treasuries in Large Chinese Enterprises," Journal of Business Ethics, Springer, vol. 79(1), pages 69-83, April.
    5. Julien Hanoteau & Virginie Vial, 2014. "Grease or sand the wheel? The effects of individual bribe payments on aggregate productivity growth," EcoMod2014 6685, EcoMod.
    6. Sharma, Chandan & Mitra, Arup, 2015. "Corruption, governance and firm performance: Evidence from Indian enterprises," Journal of Policy Modeling, Elsevier, vol. 37(5), pages 835-851.
    7. Colin C. Williams & Alvaro Martinez-Perez, 2016. "Evaluating the impacts of corruption on firm performance in developing economies: an institutional perspective," International Journal of Business and Globalisation, Inderscience Enterprises Ltd, vol. 16(4), pages 401-422.

    More about this item

    JEL classification:

    • O - Economic Development, Innovation, Technological Change, and Growth
    • P - Economic Systems

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