Does corruption increase or decrease employment in firms?

Abstract

We use representative data for firms for Latin American firms and show that corruption decreases employment in firms. This result is robust to changes in specification and also consistent with the use of an instrumental variables approach. Corruption appears to negatively impact the growth and wealth in a country, not by introducing labour distortion in firms, but by keeping them small.

KEYWORDS:

• Corruption
• bribes
• employment
• Latin America

JEL CLASSIFICATION:

• H32
• O12

Acknowledgment

I am thankful to Alberto Chong for comments and suggestions and to Alessandra Gonzales for research assistance. The standard disclaimer applies.

Notes

¹ In fact, these enterprise surveys are based on the work of Svensson (2003) and Reinikka and Svensson (2006) who explain that in order to collect reliable information on corruption at the firm level, it is crucial to design an empirical strategy that gives the manager an incentive to cooperate and truthfully report their experiences with corruption.

² Countries: Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Saint Kitt and Nevis, Saint Vincent and Grenadines, Suriname, Trinidad and Tobago, Uruguay and Venezuela. All the surveys were performed in 2010 with the exception of Brazil, which was performed in 2009.

³ Table of correlations is available upon request.

⁴ First stages are available upon request.