Corruption and Firms

57 Pages Posted: 14 Mar 2017 Last revised: 23 Sep 2019

See all articles by Emanuele Colonnelli

Emanuele Colonnelli

University of Chicago - Booth School of Business

Mounu Prem

Universidad del Rosario

Date Written: September 17, 2019


We estimate the causal real economic effects of a randomized anti-corruption crackdown on local governments in Brazil over the period 2003-2014. After anti-corruption audits, municipalities experience an increase in economic activity concentrated in sectors most dependent on government relationships. These effects spill over to nearby municipalities and are larger when the audits are covered by the media. Back-of-the-envelope estimates suggest that $1 away from corruption generates more than $3 in local value added. Using administrative matched employer-employee and firm-level datasets and novel face-to-face firm surveys we argue that corruption mostly acts as a barrier to entry, and by introducing costs and distortions on local government-dependent firms. The political misallocation of resources across firms plays a seemingly secondary role, indicating that at the local level most rents are captured by politicians and public officials rather than firms.

Keywords: Corruption, Firms, Audits, Public Procurement, Misallocation, Labor Reallocation, Political Connections

JEL Classification: D22, D72, D73, G30, G38, H57, K00, L22, O10, O43

Suggested Citation

Colonnelli, Emanuele and Prem, Mounu, Corruption and Firms (September 17, 2019). Available at SSRN: or

Emanuele Colonnelli (Contact Author)

University of Chicago - Booth School of Business ( email )


Mounu Prem

Universidad del Rosario ( email )

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