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Corruption and the Efficiency of Capital Investment in Developing Countries

Finn Tarp () and Conor O'Toole ()

No wp-2012-027, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)

Abstract: This paper considers the effect of corruption on the efficiency of capital investment. Using firm-level level data from the World Bank enterprise surveys, covering 90 developing and transition economies, we consider whether the cost of informal bribe payments distorts the efficient allocation of capital by reducing the marginal return per unit investment. Using country estimates of fractionalization and legal origin as instruments, and controlling for censoring, we find that bribery decreases investment efficiency, as measured using both absolute and relative metrics of investment returns.

Keywords: Capital investments; Economic development; Corruption; Rate of return (search for similar items in EconPapers)
Date: 2012
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Journal Article: CORRUPTION AND THE EFFICIENCY OF CAPITAL INVESTMENT IN DEVELOPING COUNTRIES (2014) Downloads
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