Abstract
Institutional environments situated at the interfaces of global trade can be complex and nebulous involving multitudinous nation states, trading organizations and supply chains, often for shipments of a single product. Such environments involve significant regulatory constraints that give rise to regulatory friction in global trade. This frequently results in corruption employed to reduce such regulatory frictions. The literature espouses two opposing views of how corruption affects regulatory friction to either reduce or increase overall economic productivity: (1) the greasing the wheels hypothesis where corruption is seen as a means to overcome regulatory friction, and (2) the sand in the wheels hypothesis where corruption is seen as exacerbating the effects of regulatory friction. We explore corruption’s effect on the performance of organizations’ global supply chains that encounter regulatory friction at the country level interfaces of international trade. Country level secondary data measuring experts’ perceptions of country level supply chain performance, corruption and regulatory burdens allow us to explore the effects of corruption and regulatory friction on global supply chain performance. Our results present a more nuanced view of the two hypotheses as dependent upon factors in the institutional environment such as the regulatory climate and the effectiveness of the legal system.
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