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Country governance, corruption, and the likelihood of firms’ innovation

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  • Lee, Chien-Chiang
  • Wang, Chih-Wei
  • Ho, Shan-Ju

Abstract

Using a sample of firms from the World Bank Enterprise Survey for the period 2006–2016 in emerging and developing countries, we find that corruption has a negative impact on the likelihood of innovations, thus supporting the “sanding-the-wheels” hypothesis. Our empirical results also show that corruption at the firm level, in the manufacturing industry, and in regions with the worst governance or that are more corrupt has a significant negative effect on innovation. In addition, country governance plays a particularly important role in innovative activity for corrupt firms. The policy implication is that the government or authority should strengthen the positive role of government effectiveness, rule of law, regulatory quality, and control of corruption in order to improve firms’ innovation within an environment of corruption.

Suggested Citation

  • Lee, Chien-Chiang & Wang, Chih-Wei & Ho, Shan-Ju, 2020. "Country governance, corruption, and the likelihood of firms’ innovation," Economic Modelling, Elsevier, vol. 92(C), pages 326-338.
    • Handle: RePEc:eee:ecmode:v:92:y:2020:i:c:p:326-338
    DOI: 10.1016/j.econmod.2020.01.013
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    13. Dokas, Ioannis & Panagiotidis, Minas & Papadamou, Stephanos & Spyromitros, Eleftherios, 2023. "Does innovation affect the impact of corruption on economic growth? International evidence," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 1030-1054.
    14. Li, Qiang & An, Lian & Zhang, Ren, 2023. "Corruption drives brain drain: Cross-country evidence from machine learning," Economic Modelling, Elsevier, vol. 126(C).
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    More about this item

    Keywords

    Innovation; Quality certificates; Patents; Corruption; Government governance;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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