Does corruption affect firm growth? New evidence from Mozambique

Halfdan Lynge

Studies in Economics and Econometrics, 2023, vol. 47, issue 2, 169-184

Abstract: This paper estimates the effect of corruption on firm growth; specifically, in the context of Mozambique. Using instrumental variable estimation to address potential problems of endogeneity and measurement error, the paper finds that corruption has a robust negative effect on sales and productivity growth. The effect is not constant but declines as firm performance drops and corruption increases. This means corruption is most damaging to high-performance firms, meaning firms with higher sales and productivity growth rates, and to firms with lower bribe rates. For low-performance firms and firms with higher bribe rates, the effect gradually approaches zero. The paper contributes to the literatures in two ways. First, it offers a more nuanced understanding of the relationship between corruption and firm growth by showing that the effect of corruption is conditional on firm-specific factors. Second, the paper extends the empirical research on corruption and firm growth to Southern Africa, which has previously been excluded from the literature.

Date: 2023
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DOI: 10.1080/03796205.2023.2218056

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