Is Corruption Efficiency-Enhancing? A Case Study of Nine Central and Eastern European Countries

59 Pages Posted: 30 Aug 2016

See all articles by Elisa Gamberoni

Elisa Gamberoni

European Central Bank (ECB)

Christine Gartner

European Central Bank (ECB)

Claire Giordano

Bank of Italy

Paloma Lopez-Garcia

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: August 30, 2016

Abstract

We investigate the role of corruption in the business environment in explaining the efficiency of within-sector production factor allocation across firms in nine Central and Eastern European countries in the period 2003-2012. Using a conditional convergence model, we find evidence of a positive relationship between corruption growth and both labour and capital misallocation dynamics, once country framework conditions are controlled for: the link between corruption and input misallocation dynamics is larger the smaller the country, the lower the degree of political stability and of civil liberties, and the weaker the quality of its regulations. As input misallocation is one of the determinants of productivity growth, we further show that the relationship between changes in corruption and TFP growth is indeed negative. Our results hold when we tackle a possible omitted variable bias by instrumenting corruption with two instrumental variables (the percentage of women in Parliament and freedom of the press).

Keywords: bribes, capital misallocation, labour misallocation, total factor productivity

JEL Classification: D24, D73, O47

Suggested Citation

Gamberoni, Elisa and Gartner, Christine and Giordano, Claire and Lopez-Garcia, Paloma, Is Corruption Efficiency-Enhancing? A Case Study of Nine Central and Eastern European Countries (August 30, 2016). ECB Working Paper No. 1950. Available at SSRN: https://ssrn.com/abstract=2832009

Elisa Gamberoni (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Christine Gartner

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Claire Giordano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Paloma Lopez-Garcia

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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