Complications Of Corruption And Growth At The Micro Level

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Fisman and Svensson found some evidence that corruption influences growth at the micro level. They have used the dataset which contains information on the estimated bribe payments of the firms in Uganda. Their dataset contains information from the Ugandan Industrial Enterprise Survey about 243 firms in 5 locations and 14 industries. As it was discussed before, corruption has a very secretive and uncertain nature, and therefore there have been implemented different methods in order to increase efficiency of the data collection process. The surveys have been created through an industry association UMACIS which has a very reliable and trustworthy reputation in Uganda. UMACIS created corruption questions based on existing surveys on regulatory …show more content…
Bureaucrats will require a bribe from a firm based on this firm’s ability and willingness to pay. For instance, if one firm has a better demand forecast than the other firm, bureaucrats would require a higher amount of a bribe from this firm than from the other. At the same time, we can also assume that if the firm with a better demand forecast has more profits, it would allocate more money to investments and the firm’s expansion. Thus, the firm’s better demand forecast will impact investment and expansion. Comparing more successful firms to less successful firms, we would find that greater amounts of bribes are correlated with a higher growth rate of the firm, when in reality the main reason of the firm’s growth is its successfully established inner structure and allocation of its resources to investments. Moreover, it may be hard to measure a relationship between corruption and growth because some firms may choose to allocate their resources to rent-seeking, while others improve their efficiency by spending more on investments. Rent-seeking and investments can both lead to an increase in firm’s growth, but it is quite ambiguous what strategy has a bigger impact. This would diminish the effect of corruption on …show more content…
Based on the results of the model, it can be concluded that there is a negative correlation between firm’s growth and corruption: if bribery rate is increased by 1%, the growth rate will be decreased by 3%. Fisman and Svensson also found that taxation has a weaker effect on firm’s growth: a 1% increase in tax rate leads to a 1% decrease in firm’s growth rate. To increase the relationship between firm’s growth rate and corruption, Fisman and Svensson ran their model without the outliers: there were four firms that happened to have extremely high bribery rates. Without the outliers, a 1% increase in bribe rate leads to a 6% decrease in firm’s growth rate. As for tax rate, a 1% increase in taxation leads to a 0.3% decrease in the growth rate. Therefore, Fisman and Svensson’s model proves that corruption does have a negative impact on growth rate at the micro level in Uganda, and the effect of corruption on the growth rate tends to be stronger than that of the tax

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