Corruption, innovation and firm growth: Firm-level evidence from Egypt and Tunisia
Micheline Goedhuys, Pierre Mohnen & Tamer Taha
#2016-056
Using recently collected firm-level data from Egypt and Tunisia, this
paper explores the effect of institutional obstacles and corruption on
the innovative behaviour of firms and their effect on firms' employment
growth. We estimate the micro-level interactions between corruption and
institutional obstacles and test the hypothesis that corruption 'greases
the wheels' of firm performance when bureaucratic procedures are more
severe and hampering innovation. Accounting for endogeneity and
simultaneity, the paper uses a conditional recursive mixed-process model
(CMP). The results show that corruption has a direct negative effect on
the likelihood that a firm is an innovator, but a positive effect when
interacted with institutional obstacles. This provides support for the
hypothesis that corruption serves as a mechanism to bypass the
bureaucratic obstacles related to obtaining the necessary business
permits and licences for product innovation. These effects also resonate
into firm growth, through their effect on product innovation.
JEL Classification: 012, 031, L25, D73
Keywords: Innovation, corruption, employment growth, Egypt, Tunisia