The nexus between public sector corruption and private sector efficiency: Evidence from worldwide firm‐level data

Nandika Sanath Kumanayake, Ajantha Sisira Kumara and Asankha Pallegedara

Review of Development Economics, 2023, vol. 27, issue 2, 1056-1077

Abstract: Anti‐corruption is highlighted as one of the key institutional principles by the United Nations, as corruption hinders the progress in achieving sustainable development goals. However, the extant literature on how private firms' efficiency is influenced by corruption prevailing in regulatory agencies across economies has been inconclusive. Analyzing the World Bank Enterprise Survey data across 45,121 firms from 80 countries, this study finds that bribe payments to corrupt public officials by firms causes bureaucratic delays. Employing an instrumental variable Tobit framework to address the issue of endogeneity inherited with observational data, this study demonstrates that an increase in the magnitude of bribes and depth of corruption by one percentage point separately expands the firm managers' time being spent on regulatory requirements by 2.78 percentage points and 2.47 percentage points, respectively. The findings are robust to different specifications. The results imply the importance of promoting anti‐corruption measures across countries to create a conducive environment for firms to enhance efficiency, and thereby to achieve sustainable development goals successfully.

Date: 2023
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