The impact of corruption and local content policy in on firm performance: Evidence from Kazakhstan

Abstract

Many governments of both resource-rich and resource-poor countries have recently started to use local content policies as a tool in their industrial policies. However, careless implementation of local content policies can lead to corrupt practices and threaten firm performance. Using the World Bank Enterprise Survey of 933 Kazakhstani firms in 2009 and 2013, we study the effect of corruption on employment and sales growth and the role that explicit local content policy plays in this relationship. Our findings demonstrate that corruption has “a greasing the wheels effects”, facilitating employment growth and sales growth in Kazakhstani firms. In case of securing a government contract, corruption will have a larger effect on sales growth than on job growth. This study provides insights and implications for contract law and industrial policy in Kazakhstan.