Apr 24, 2012

The cost of bribes for firms in Latin America

From the new study "How Bribery Distorts Firm Growth: Differences by Firm Attributes" by Şeker and Yang: 
This study shows that for firms in the Latin America and Caribbean region, bribery significantly distorts firm growth. Firms that pay bribes when conducting business transactions—such as applying for permits, electricity, or water connections—have 24 percent lower annual sales growth than firms that do not face such solicitations.
The authors conclude:
A limited number of studies have examined the relationship between bribery and firm evolution. In this study, we contribute to this literature by using firm-level data from 29 developing countries in the LAC region. Our analysis is novel in a few dimensions. Micro-level data on corruption are scarce. We use data from Enterprise surveys which apply the same methodology to collect data from a large set of countries. This allows us to combine data for different countries. Second, we study the differential effects of corruption on growth. We assess the impact of bribery on sales growth by focusing on how bribery affects firms differently based on their sales and age.
We find significant differential effects of bribery by firm size and firm age. Paying bribes decreases sales growth of low-sales-generating firms more severely than high-sales-generating firms . . . 

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