Corruption and Entrepreneurship: Evidence from a Random Audit Program

Jamie Bologna and Amanda Ross ()

No 15-05, Working Papers from Department of Economics, West Virginia University

Abstract: In this paper, we examine the effect of corruption on business activity in Brazilian municipalities. Previous research that has examined the impact of corruption has relied primarily on survey or conviction data, which may be problematic as these measures likely to be biased. We use a new measure of corruption that draws upon random audit data of municipal governments’ finances in Brazil. We find that higher levels of corruption cause reductions in the number of businesses operating in an area. Furthermore, we find that these effects become larger over time, suggesting that corruption is more detrimental to long-run economic activity. However, we find that if institutional quality is poor, then higher levels of corruption result in more businesses locating in a jurisdiction. This supports the argument that if there are poor institutions operating in an area, corruption can “grease the wheels†and is an alternative mechanism to help new businesses in the area.

Keywords: Entrepreneurship; Corruption; Institutions (search for similar items in EconPapers)
JEL-codes: R1 R5 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015-05
New Economics Papers: this item is included in nep-acc and nep-ent
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

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