Does Corruption Explain the Decision to Invest and the Value of Investment? Revisiting Evidence From Sub‐Saharan African Firms

Ibrahim Mike Okumu, Sunday Nathan and Edward Bbaale

Journal of International Development, 2025, vol. 37, issue 8, 1622-1639

Abstract: This article examines how corruption relates to a firm's decision to invest and the value of investment. We use data from the World Bank Enterprise Survey (WBES) of firms in Sub‐Saharan Africa (SSA), surveyed between 2010 and 2017. We adopt an instrumental variable approach to address the endogeneity problem. Our results suggest that lower levels of bribe payments enable firms to circumvent bureaucratic hurdles, thus facilitating investment decisions. However, at higher levels of corruption, the relationship is inverse. Corruption distorts the value of firm investment, especially among small firms, those in the manufacturing sector rather than service, and both young and mature firms. The distortionary effects of corruption are worsened by credit constraints. Our findings reaffirm the importance of SSA countries strengthening their fight against corruption to boost firm investment and economic transformation, especially given the dominance of small firms.

Date: 2025
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https://doi.org/10.1002/jid.70029

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jintdv:v:37:y:2025:i:8:p:1622-1639

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