Do customs and other trade regulatory barriers lead firms to bribe? Evidence from Asia

Abstract

Corruption has become a big issue in the international trade environment with the increasing number of non-tariff barriers. The cost of corruption in customs administrations around the world has been estimated to be at least USD 2 billion. When stringent regulations become barriers to firms, they sometimes bribe government officials to get things done. Using firm-level data covering 11 Asian countries, this study sets out to quantify the impact of customs and other trade regulatory barriers on the firms’ decision to bribe. Endogenous treatment model has been accommodated to address possible endogeneity problems usually inherited in this kind of observational data. Results provide that in Asia, firms which experience difficulties with customs and other trade regulatory constraints are likely to pay more bribe amounting to 6.4% of their annual total sales than other firms. Enterprises which trust the fair functioning of their judiciary systems and enterprises with high productivity levels are less likely to bribe government officials to get things done. It is, therefore, necessary to implement policies to eliminate administrative inefficiencies especially in customs and minimize trade regulatory constraints to control trade-related corrupt practices.

KEYWORDS:

• Customs
• trade regulatory barrier
• bribery
• corruption
• Asian firms
• endogenous treatment model

JEL Classifications:

• D21
• D2
• D
• F19
• F1
• F
• H26
• H2
• H

Acknowledgements

Author would like to thank three anonymous reviewers of the journal for their important comments to improve the quality of the paper. Author is also grateful to Ajantha Sisira Kumara for his valuable suggestions on earlier draft of this manuscript.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 World Bank World Development indicators (WDI) and World Integrated Trade Solutions (WITS) data can be accessed via https://databank.worldbank.org/source/world-development-indicators and https://wits.worldbank.org/, respectively.

2 WBES categorizes firm sizes as; Small: 5–19 workers, Medium: 20–99 workers, and Large: 100+ workers

3 GDP per capita and trade openness data are taken from World Bank World Development Indicators (WDI) and 2011 PPP international $ conversion rate is used.

4 As per the World Bank Worldwide Governance Indicators (WGI), Rule of Law reflects perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence, and Regulatory Quality reflects perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development.

5 The WBES provides economic data on 171,000 firms in 148 countries. More details about surveys and sampling methodologies can be retrieved from their website (https://www.enterprisesurveys.org).