Does Corruption Hurt Employment Growth of Financially Constrained Firms More?
Payments of bribes and the expenses incurred on rent-seeking activities impose a significant financial burden on private firms, which is compounded when they do not have enough funds of their own or find it costly to borrow externally. This paper h...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/429651592832337315/Does-Corruption-Hurt-Employment-Growth-of-Financially-Constrained-Firms-More http://hdl.handle.net/10986/33981 |
| Summary: | Payments of bribes and the expenses
incurred on rent-seeking activities impose a significant
financial burden on private firms, which is compounded when
they do not have enough funds of their own or find it costly
to borrow externally. This paper hypothesizes that financial
constraints magnify the harmful effects of corruption. It
applies this idea to the impact of corruption on employment
growth among private firms. Using firm-level survey data for
109 countries, the analysis finds that corruption has a much
larger negative impact on employment growth for firms that
are financially constrained compared with firms that are not
financially constrained. For the baseline specification, a
one standard deviation increase in the bribery rate brings
about a decline in the annual growth rate of employment of
financially constrained firms that is 2.3 percent greater
than that for firms that are not financially constrained.
This is a large difference given that the mean employment
growth is about 5.1 percent. The results show that
corruption "sands the wheel" at high levels of
financial constraint and "greases the wheels" of
an otherwise slow bureaucracy at low levels of financial constraint. |
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