Firm Development and Bribery: An Empirical Study from Latin America

Abstract

This empirical research investigates how bribery by firms influences their development. We acquired the most recent firm-level data from four Latin American countries — Argentina, Bolivia, Paraguay, and Peru — and looked into the firms’ innovation capability. We also used a translog function to estimate the firms’ productivity. We considered informal payments by firms to public officials to “get things done” to be bribery. In order to mitigate the endogeneity in our estimation, we used an instrumental variable for firms’ bribery payments and found that bribery exerted significantly negative impacts on both innovation capability and productivity of the observed firms. Other firm-level characteristics, such as government relationships, industry experience, participation in the global market, and number of employees, were also found to be closely related to firm development.