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

Christine Gartner, Claire Giordano, Paloma Lopez-Garcia () and Elisa Gamberoni

No 1950, Working Paper Series from European Central Bank

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 countries in the period 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: the link between corruption and input misallocation dynamics is larger the smaller the country, the lower the degree of political stability and of 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 relationship between changes in corruption and TFP growth is indeed negative. Our results 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). JEL Classification: D24, D73, O47

Keywords: bribes; capital misallocation; labour misallocation; total factor productivity (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-eff, nep-eur and nep-tra
Note: 338641
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Citations: View citations in EconPapers (10)

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Working Paper: Is corruption efficiency-enhancing? A case study of nine Central and Eastern European countries (2016)
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