Does corruption have an impact on industrial growth? Evidence from Russia

Abstract

We test the hypothesis that corruption has an impact on the growth of the manufacturing industry of Russia. An attempt was made to carry out an investigation on the impact of corruption collecting primary data from firm owners but we ended up with only a few firms— not enough for running regressions. Reluctance to reveal information about bribe payments indicates the culture of fear inherited through ages in Russia. Then we used the World Bank's Enterprise Survey data. An econometric exercise on the impact of the corrupt behavior of government officials on firm growth has been done. OLS, IV and GMM techniques have been applied to a panel dataset. To supplement the quantitative analysis and to have a better understanding of the issues, we also collected qualitative information through Focus Group Discussions (FGD) involving firm owners, bureaucrats and experts. The analysis of the World Bank data shows a positive impact of corruption on firm growth with a highly significant coefficient of the key variable of interest, which is bribe. The findings support the so-called speed money theory and the argument for this is that when bureaucracy is stuck in corruption, some extra informal payment would help to expedite the process. Most respondents in the primary survey and FGDs have not mentioned bribery as a barrier to growth, which means bribery helps them to speed up the firm growth.