The estimation results show that, in countries that are classed as exceptionally corrupt by Transparency International, bribe money has a remarkably negative effect on productivity. A possible explanation is that, in countries where corruption is common practice, firms cannot get any additional benefit from also paying bribes. In fact, the more a firm is willing to pay in terms of bribes, the less it can spend in a more efficient way. This induces negative effects on productivity. We find a similar effect in the interaction of bribe tax and quality of the legal system. Firms that operate in countries that have a legal system with a low quality experience strong negative effects of bribes on productivity. In countries that are classified as not corrupt or as having an adequate legal system, the story is the reverse: firms can benefit from paying grease money. An explanation could be that firms operating in countries with low corruption rates can profit because bribing is an unusual practice that helps them gain an advantage over their competitors.
A possible explanation is that, in countries where corruption is common practice, firms cannot get any additional benefit from also paying bribes. In fact, the more a firm is willing to pay in terms of bribes, the less it can spend in a more efficient way. This induces negative effects on productivity. We find a similar effect in the interaction of bribe tax and quality of the legal system. Firms that operate in countries that have a legal system with a low quality experience strong negative effects of bribes on productivity.
In countries that are classified as not corrupt or as having an adequate legal system, the story is the reverse: firms can benefit from paying grease money. An explanation could be that firms operating in countries with low corruption rates can profit because bribing is an unusual practice that helps them gain an advantage over their competitors.
