Does Political Corruption Impede Firm Innovation? Evidence from the United States
Forthcoming, Journal of Financial and Quantitative Analysis
71 Pages Posted: 18 Aug 2017 Last revised: 1 Nov 2019
Date Written: October 23, 2015
We examine how local political corruption affects firm innovation in the United States. We find that firms located in highly corrupt areas are less innovative as measured by their patenting activities. The results are robust to the inclusion of a broad set of regional characteristics, instrumental variable analysis, matching analysis, difference in differences test, and alternative proxies for local corruption. Further analysis shows that reduced innovation incentives due to high extortion risk and decreased threat of competition could be the possible economic channels through which corruption affects innovation. Overall, our results indicate that local political corruption impedes corporate innovation in the US.
Keywords: political corruption, innovation, patent, citation, government procurement
JEL Classification: G31, G38, D72
Suggested Citation: Suggested Citation