An examination of the relationship between corruption and total entrepreneurial activity

Abstract

In this paper, we attempt to link the International Transparency index with economic development, specifically entrepreneurial activity. Using data collected through Global Entrepreneurship Monitor (GEM), CIA’s World Factbook and the 1997 Transparency International, we found that overall corruption and total entrepreneurial activity (TEA) are negatively related, that is, the more corrupted, the less entrepreneurial activity. However, we argued that the relationship between the two variables can be more complicated. Introducing a non-linear term, we discovered that corruption and TEA are related in a U shape where extremely corrupted and extremely transparent countries tend to have more entrepreneurial activities. We identified possible reasons for our findings. We also provided suggestions to managers and entrepreneurs engaging in international business activities.