Does "Grease Money" Speed Up the Wheels of Commerce?

Daniel Kaufmann and Shang-Jin Wei

No 7093, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In an environment in which bureaucratic burden and delay are exogenous, an individual firm may find bribes helpful to reduce the effective red tape it faces. The efficient grease' hypothesis asserts therefore that corruption can improve economic efficiency and that fighting bribery would be counter-productive. This need not be the case. In a general equilibrium in which regulatory burden and delay can be endogenously chosen by rent-seeking bureaucrats, the effective (not just nominal) red tape and bribery may be positively correlated across firms. Using data from three worldwide firm-level surveys, we examine the relationship between bribe payment, management time wasted with bureaucrats, and cost of capital. Contrary to the efficient grease' theory, we find that firms that pay more bribes are also likely to spend more, not less, management time with bureaucrats negotiating regulations, and face higher, not lower, cost of capital.

JEL-codes: F20 O12 (search for similar items in EconPapers)
Date: 1999-04
New Economics Papers: this item is included in nep-ind
Note: ITI
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Citations: View citations in EconPapers (217)

Published as Daniel Kaufmann & Shang-Jin Wei, 2000. "Does 'Grease Money' Speed Up the Wheels of Commerce?," IMF Working Papers, vol 00(64).

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Working Paper: Does 'Grease Money' Speed Up the Wheels of Commerce? (2000)
Working Paper: Does 'Grease Money' Speed Up the Wheels of Commerce? (1999)
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