Is corruption efficiency-enhancing? A case study of nine Central and Eastern European countries

Elisa Gamberoni, Christine Gartner (), Claire Giordano and Paloma Lopez-Garcia ()
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Christine Gartner: European Central Bank

No 331, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We investigate the role of corruption in the business environment in explaining the efficiency of within-sector production factor allocation across firms in nine Central and Eastern European (CEE) countries in 2003-2012. Using a conditional convergence model, we find evidence of a positive relationship between corruption growth and both labour and capital misallocation dynamics, once country framework conditions are controlled for: this link is larger the smaller the country, the lower the degree of political stability and civil liberties, and the weaker the quality of its regulations. As input misallocation is one of the determinants of productivity growth, we further show that the correlation between changes in corruption and TFP growth is indeed negative. Our results also hold when we tackle a possible omitted variable bias by instrumenting corruption with two instrumental variables (the percentage of women in Parliament and freedom of the press). In conclusion, targeted action against corruption in the CEE region would be efficiency-enhancing.

Keywords: bribes; capital misallocation; labour misallocation; total factor productivity (search for similar items in EconPapers)
JEL-codes: D24 D73 O47 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-eff, nep-eur, nep-net and nep-tra
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Is corruption efficiency-enhancing? A case study of the Central and Eastern European region (2018)
Working Paper: Is corruption efficiency-enhancing? A case study of nine Central and Eastern European countries (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_331_16

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