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      Does bribery sand or grease the wheels of firm level innovation: Evidence from Latin American countries

      Wellalage, Nirosha Hewa; Thrikawala, Sujani Sudhara
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      Does bribery sand or grease the wheels of firm level innovation.pdf
      Accepted version, 1.292Mb
      DOI
       10.1007/s00191-020-00717-0
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      Permanent link to Research Commons version
      https://hdl.handle.net/10289/15458
      Abstract
      This paper examines the effects of bribery on product and process innovation at the firm level in Latin American countries. We provide insights into the heterogeneous effects of bribery on the types of innovations across firms. Using the locality-sector average of bribe payments as a percentage of firm annual sales, we control for endogeneity bias, which is a recurring econometric problem in corruption-innovation studies. Overall, we find evidence to support the ‘sand the wheels’ hypothesis and argue that this negative effect is slightly higher in process innovation compared to product innovation. Using interaction terms to see the effects of bribery on different firm sizes and institutional structures, we find that bribery hurts firm innovation for micro and small firms, but not for large firms. The results also suggest that the negative effect of corruption on firm level innovation is stronger for firms in weak institutional environments than for firms in strong institutional settings. Practical interventions to promote strong institutional governance are not easy to arrange when corruption is endemic. Greater awareness of the extortionist environment of companies in these countries in the international community may bring pressures to bear for reform.
      Date
      2021-01-06
      Type
      Journal Article
      Publisher
      SPRINGER
      Rights
      This is an author’s accepted version of an article published in the Journal of Evolutionary Economics. The original publication is available at www.springerlink.com. Publication rights licensed to Springer.
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