Corruption and Corporate Innovation
Journal of Financial and Quantitative Analysis, 2020 (vol. 55, no. 7, p. 2124-2149)
46 Pages Posted: 5 Nov 2016 Last revised: 9 Dec 2021
Date Written: October 26, 2015
We examine whether political corruption impedes innovation. Using a comprehensive sample of US firms, we find that corruption has a substantial, negative relation with the quantity and quality of innovation. These results are robust to using various fixed effects, proxies for corruption and innovation, and subsamples. To establish causality, we employ two instruments for corruption: local ethnic diversity and the corruption of the state a firm’s founder grew up in. Corruption appears to reduce innovation output both on average and for the most innovative firms. Overall, this evidence is consistent with the notion that corruption reduces social welfare by impeding innovation.
Keywords: Innovation, corruption, research & development, rent-seeking
JEL Classification: G31, G38, D72, O31
Suggested Citation: Suggested Citation