Firm Development and Bribery: An Empirical Study from Latin America

This empirical research investigated how bribery by firms influences their development. The most recent firm-level data were acquired from four Latin American countries (Argentina, Bolivia, Paraguay, and Peru) and looked into the firms’ innovation capability. A translog function was used to estimate the firms’ productivity. Bribery was defined as informal payments by firms to public officials to “get things done”. In order to mitigate the endogeneity in the estimation, an instrumental variable was used for firms’ bribery payments. Bribery was found to have a significantly negative impact on both innovation capability and productivity of the observed firms. Other firm-level characteristics, such as government relationships, industry experience, participation in the global market, and number of employees, were also closely related to firm development.