Does local government corruption inhibit entrepreneurship?

Emanuel Wittberg (), Gissur Ó. Erlingsson () and Karl Wennberg ()
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Emanuel Wittberg: Linköping University
Gissur Ó. Erlingsson: Linköping University
Karl Wennberg: Linköping University

Small Business Economics, 2024, vol. 62, issue 2, No 16, 775-806

Abstract: Abstract The dominant ‘sand in the wheels’ view holds that entrepreneurship is strongly inhibited by corruption. Challenging this, the ‘grease the wheels’ view maintains that corruption might increase entrepreneurship in highly regulated economies. We extend the basic predictions of these theories by examining entrepreneurs’ start-up decisions, as well as their location choices, in a seemingly low-corruption environment: Swedish municipalities. Combining a validated index of corruption perceptions in local government with population data on new entrepreneurs, nested logit models reveal that even in a low-corruption setting such as Sweden, perceptions of corruption can deter latent entrepreneurs. We also find that a minority of entrepreneurs relocate from their home municipalities to establish their start-ups elsewhere. Surprisingly and contrary to expectations, these relocating entrepreneurs often relocate from relatively low-corruption municipalities to others that are more corrupt. Implications for future research and public policy are discussed.

Keywords: Entrepreneurship; Location choice; Corruption; Local government (search for similar items in EconPapers)
JEL-codes: D73 L26 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11187-023-00783-1

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