Corruption and the Efficiency of Capital Investment in Developing Countries

Conor M. O’Toole, Finn Tarp

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64 Citationer (Scopus)

Abstract

This paper tests the effect of corruption on the efficiency of capital investment. Using firm-level data from the World Bank Enterprise Surveys, covering 90 developing and transition economies, we consider whether the cost of informal bribe payments distorts the efficient allocation of capital by reducing the marginal return per unit investment. Controlling for censoring and endogeneity, we find that bribery decreases investment efficiency. The negative effect is strongest for domestic small-sized and medium-sized enterprises. We conclude that reducing the level and incidence of bribery by public officials would facilitate a more efficient allocation of capital.
OriginalsprogEngelsk
TidsskriftJournal of International Development
Vol/bind26
Udgave nummer5
Sider (fra-til)567-597
ISSN0954-1748
DOI
StatusUdgivet - 2014

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