A study of corruption in transition countries

Author

Aboubacar DIABY, Southern Illinois University CarbondaleFollow

Date of Award

5-1-2012

Degree Name

Doctor of Philosophy

Department

Economics

First Advisor

Sylwester, Kevin

Abstract

Past theoretical research has explored whether bribes paid by firms to government officials are greater under a decentralized bureaucracy where the firm faces numerous government officials or under a monopolistic one. Presumably, bribes are bid down in the former as officials compete for bribes. However, a tragedy of the commons could occur where decentralized officials "overgraze" and charge higher bribes than a single bureaucrat would. Using the BEEPS I, a firm level survey covering 24 transition countries, the chapter 1 examines whether reported bribe payments by firms are higher when firms face numerous officials or only a single one. We find that bribe payments are higher under a more decentralized bureaucratic structure. In chapter 2 we investigate the link between private market competition and bribery. Greater competition could lower profits thereby limiting the amount corruption since rents are lower but greater competition could also provide more incentives for firms to pay bribes to obtain advantages over their rivals. We consider bribes to obtain government contracts. Using the BEEPS III dataset on 27 transition countries and the Censored Quantile Regression methodology we empirically found that as the number of competitors increases the amount bribes paid tend to increase as well. We also found that this relationship follows an inverted U. The marginal effect increases with the amount of bribes paid up to a maximum, then decreases, but remains positive. We believe that this relationship is driven by more competitors raising demand for these contracts. In chapter 3 we investigate the association between corruption and two types of investment. Past research focuses only on the total level of investment. Using the same dataset as used in chapter 2, we obtain mixed results. Using a tobit model, we find evidence that corruption "greases the wheels" of physical investment but has no significant effect on the level of R&D investment. However, results from a probit model suggest that corruption does negatively impact whether or not the firm undertakes R&D. These findings indicate corruption can affect not only the level but also the decision of whether to invest. They also show that these effects might differ across the type of investment so that the "grease wheels" and "sand wheels" perspectives are not incompatible as most the studies using the aggregate level of investment tend to imply.