Perceived corruption in business environment: exploring the underlying causes

Abstract

This paper presents an empirical contribution to the literature that tends to explain variations in corruption perceptions. Drawing on theoretical assumptions about the impact of corruption on the quality of the business environment, we explore possible determinants of perceived corruption. We argue that explaining the determinants of corruption perceptions could be a valuable input for creating effective anti-corruption policies. In the paper, we perform a detailed analysis on the case of Serbia, a transition country with relatively widespread corruption in the business environment. Using the non-parametric analysis of variance test, we examine the significance of differences in the perceived spread of corruption across a number of independent variables (regions, size of locality, industry, size, and years of operation). Specifying an ordered logistic regression model, we estimate the relation between corruption perceptions and a number of potential causes: frequencies of unofficial payments or gifts for different purposes, the impact that unofficial payments to public officials have on the business operations of the respondents, as well as attitudes of the respondents about the quality of the judicial system and political stability. We find that perceptions of corruption as an obstacle to business operations can be linked to the frequency of unofficial payments to deal with customs and taxes, as well as the impact of unofficial payments to local or regional government officials on business performance of the respondents. The results provide useful insights into what policy measures are necessary to reduce the level of corruption, as well as how the effects of such measures can be assessed.