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Does corruption hinder investment? Evidence from Russian regions

Nikita Zakharov

European Journal of Political Economy, 2019, vol. 56, issue C, 39-61

Abstract: This paper investigates the relationship between corruption and fixed capital investment in the setting of a corrupt country. Using different measures of corruption – registered cases of bribe taking and incidents of experienced corruption by the population – we find a negative relationship between investment and corruption. We then address the problem of endogeneity of corruption using an instrumental variables approach: when corruption is instrumented with freedom of the press and violations of journalists' rights, we find an even bigger negative effect. Disaggregating investment by ownership-type shows that only private investment is affected by corruption, but not investment made by state-owned companies. The negative effect is larger for companies with full or partial foreign ownership. Additionally, we look at the relationship between corruption and foreign direct investment (FDI): similar to the investment in fixed capital, we find a negative relationship; however, its statistical significance varies across specifications with different data sources for FDI and different corruption measures.

Keywords: Corruption; Investment; Foreign investment; Russia; Freedom of press (search for similar items in EconPapers)
JEL-codes: E22 F21 K42 L26 P26 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:poleco:v:56:y:2019:i:c:p:39-61