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

56 Pages Posted: 29 Sep 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: June 6, 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 (CEE) countries in 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: this link is larger the smaller the country, the lower the degree of political stability and 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 correlation between changes in corruption and TFP growth is indeed negative. Our results also 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). In conclusion, targeted action against corruption in the CEE region would be efficiency-enhancing.

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 (June 6, 2016). Bank of Italy Occasional Paper No. 331. Available at SSRN: https://ssrn.com/abstract=2844729 or http://dx.doi.org/10.2139/ssrn.2844729

Elisa Gamberoni

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 (Contact Author)

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

Register to save articles to
your library

Register

Paper statistics

Downloads
30
Abstract Views
452
PlumX Metrics