The Impact Of Corruption On Firms' Growth

The primary objective of this study is to understand how corruption affect sales growth of firms in Argentina,Venezuela and Mexico.The effect of corruption on productivity and employment growth is also investigated.We used cross-sectional data for 2009 from World Enterprise Survey of 2010 covering 2,853 firms from 18 industries and 16 regions of these countries.Empirical models are estimated with Ordinary Least Squares and Instrumental Variables(IV)methods,while controlling for fixed effects.We used industry-location averages of informal payments as instrument for corruption and carried out a two stage least squares estimation(2SLS).Our IV is not original but follows the literature.We found the effect of corruption on sales growth to be negative and significant for the pooled sample,Argentina and Venezuela.The coefficient for Mexico was negative but insignificant and we traced it to the fact that most of the firms in Mexico reported zero corruption level.The OLS and fixed effects estimates are pretty robust in terms of significance and magnitude.However,there is evidence that corruption does not significantly affect productivity and employment growth.