Corruption and Innovation in Manufacturing Firms: A Cross-country Analysis

Abstract

In this paper, I study how two types of corruption – public procurement or grand corruption and petty corruption – affect the new product innovation in manufacturing firms. Using the firm level data from the Enterprise Survey implemented by the World Bank and partners in 2019, the study implemented a two-stage instrumental approach for both types of corruption. The results confirm the complex effects of corruption on innovation: while grand corruption tends to harm innovation, petty corruption is found to have positive effects. From the limitations of this study, I also propose some directions for further research to understand the transnational feature of corruption.