Informality, foreign ownership and bribery in developing countries

Abstract

Previous studies have evaluated the characteristics of enterprises; however, the understanding of the effects of foreign capital and competition with the informal sector on the occurrence of bribery is limited. Competition with the informal sector is related to fundamental characteristics of the involved countries, such as low development levels, which, in turn, is connected to high levels of corruption. There is no consensus concerning the impact of foreign capital on corruption. Using a multilevel logit, we estimate the likelihood of bribery among firms in 88 emerging countries. This study finds that competition with informal enterprises is associated with an increased likelihood of bribery occurrence; however, there is no difference between foreign and domestic corporations in terms of corrupt behavior. We split the countries into six regions. Competition with the informal sector presents a positive effect on the firms' likelihood to bribe in five of these six regions. Foreign capital is statistically nonsignificant in all regions, while a significant difference is found across the regions related to the effects of improvement in bureaucratic quality, income, and national political stability. The study indicates that homogenous anti-corruption policies are not very effective.