Corruption and Entrepreneurship in Emerging Markets

Abstract

ABSTRACTWe applied an institutional perspective lens to examining the relationship between corruption and entrepreneurship. Our results suggest that corruption plays an informal but legitimate institutional channel in facilitating entrepreneurship in sub-national regions with underdeveloped formal institutions. However, we also find the positive relationship between corruption and entrepreneurship is limited, and that high levels of corruption have a negative effect on entrepreneurship. Examining a longitudinal nationwide individual-level survey from China, we find an inverted U relationship between corruption and entrepreneurship; i.e., sub-national corruption at low levels is positively associated with focal regions’ prevalence of entrepreneurship, but prevalence of entrepreneurship is negatively correlated with high levels of corruption. Additionally, we find that sub-national regions with stronger marketization level (e.g., pro-market resource allocation and lower market entry barriers) can offset the diminishing positive effect of corruption. This study theoretically advances the puzzle of mixed findings on the corruption–entrepreneurship relationship by considering the sub-national region differences. We also enrich the understanding of the role of informal institutions on entrepreneurship activities in emerging markets.