Predictable Corruption and Firm Investment: Evidence from a Natural Experiment and Survey of Cambodian Entrepreneurs

Quarterly Journal of Political Science, Vol. 3, pp. 227-267, 2008

41 Pages Posted: 1 Sep 2010

See all articles by Krislert Samphantharak

Krislert Samphantharak

University of California, San Diego - School of Global Policy and Strategy

Edmund J. Malesky

Duke University, Political Science

Date Written: March 31, 2008

Abstract

This paper utilizes a unique dataset of 500 firms in ten Cambodian provinces and a natural experiment to test a long-held convention in political economy that the predictability of a corruption is at least as important for firm investment decisions as the amount of bribes a firm must pay, provided the bribes are not prohibitively expensive. Our results suggest that this hypothesis is correct. Firms exposed to a shock to their bribe schedules by a change in governor invest significantly less in subsequent periods, as they wait for new information about their new chief executive. Furthermore, the amount of corruption (both measured by survey data and proxied by the number of commercial sex workers) is significantly lower in provinces with new governors. Our findings are robust to a battery of firm-level controls and province-level investment climate measures.

Keywords: Cambodia, Corruption, Governors, Provinces, Business Environment, Economic Governance Index

JEL Classification: P51, P41

Suggested Citation

Samphantharak, Krislert and Malesky, Edmund J., Predictable Corruption and Firm Investment: Evidence from a Natural Experiment and Survey of Cambodian Entrepreneurs (March 31, 2008). Quarterly Journal of Political Science, Vol. 3, pp. 227-267, 2008. Available at SSRN: https://ssrn.com/abstract=1669682

Krislert Samphantharak

University of California, San Diego - School of Global Policy and Strategy ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States
858-534-3939 (Fax)

Edmund J. Malesky (Contact Author)

Duke University, Political Science ( email )

140 Science Drive (Gross Hall), 2nd floor
Duke University Mailcode: 90204
Durham, NC 27708-0204
United States

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