Corruption and Market Competition: Evidence from Post-Communist Countries

• Published in: World development Vol. 66; pp. 487 - 499
• Main Authors: Diaby, Aboubacar, Sylwester, Kevin
• Format: Journal Article
• Language: English
• Published: Oxford Elsevier Ltd 01.02.2015; Pergamon Press Inc
• Subjects: Bribery; Business; Competition; Corruption; Corruption in government; Enterprises; Market; Markets; Payment; Post-communism; post-communist countries; Studies; Surveys; corruption; competition; post-communist countries
• ISSN: 0305-750X; 1873-5991
• DOI: 10.1016/j.worlddev.2014.09.003

•Study of how market competition affects bribes.•Applying instrumental tobit estimation methodology to a sample of firms in post-communist countries.•Greater competition is associated with more bribes.•Results are robust to different measures of competition.•Strongest association between competition and corruption is found when governing obstacles are low. This paper empirically examines whether market competition is associated with greater bribe payments. We use firm-level data from the Business Environment and Enterprise Performance Surveys. Since market competition could be endogenous and some firms report zero bribes, we employ a tobit estimation methodology instrumenting for market competition. We find that greater market competition increases the amount of bribes paid. Results are robust across several measures of market competition. However, market competition is less strongly associated with bribes in the presence of other obstacles of doing business that could also lead to more bribes.