Does corruption hinder investment? Evidence from Russian regions |
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| Institution: | 1. Department of Economics and Business Economics, Aarhus University, Denmark;2. PeRCent, CESifo, CEPR, IZA;1. Universidad Del Pacífico, Peru;2. Department of Business Administration, Pontificia Universidad Javeriana, Colombia;1. Département des Sciences Économiques, ESG-UQAM, Montréal, Canada;2. CESifo, Germany;3. CORE, Belgium;4. Universidad de los Andes, School of Government, Colombia;5. CORE, Université de Louvain, Belgium;6. CREPP, Université de Liège, Belgium;7. Toulouse School of Economics, France;1. Department of Economics, Heidelberg University, Bergheimer Straße 58, 69115 Heidelberg, Germany;2. Deutsche Bundesbank, Wilhelm-Epstein-Str. 14, 60431 Frankfurt am Main, Germany;1. Department of Government, London School of Economics and Political Science, Houghton Street, London WC2A 2AE, UK;2. VATT Institute for Economic Research; Arkadiankatu 7, Helsinki, FI-00101, Finland;3. Bank of Finland, P.O. Box 160, FI-00101, Helsinki, Finland;4. StatFinn Ltd, Metsänneidonkuja 12, 02130, Espoo, Finland;5. University of Helsinki, Finland |
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| Abstract: | This paper investigates the relationship between corruption and fixed capital investment in the setting of a corrupt country. Using different measures of corruption – registered cases of bribe taking and incidents of experienced corruption by the population – we find a negative relationship between investment and corruption. We then address the problem of endogeneity of corruption using an instrumental variables approach: when corruption is instrumented with freedom of the press and violations of journalists' rights, we find an even bigger negative effect. Disaggregating investment by ownership-type shows that only private investment is affected by corruption, but not investment made by state-owned companies. The negative effect is larger for companies with full or partial foreign ownership. Additionally, we look at the relationship between corruption and foreign direct investment (FDI): similar to the investment in fixed capital, we find a negative relationship; however, its statistical significance varies across specifications with different data sources for FDI and different corruption measures. |
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| Keywords: | Corruption Investment Foreign investment Russia Freedom of press E22 F21 K42 L26 P26 |
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