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Does Corruption Impact Firm Innovation? Evidence from Portugal

Author

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  • Jorge Cerdeira

    (Centro de Economia e Finanças (CEF.UP), Faculdade de Economia da Universidade do Porto, Rua Dr. Roberto Frias, 4200-464 Porto, Portugal
    Instituto de Sociologia, Faculdade de Letras, Universidade do Porto, Via Panorâmica, 4150-564 Porto, Portugal
    Centro de Inovação e Investigação em Ciências Empresariais e Sistemas de Informação (CIICESI), Escola Superior de Tecnologia e Gestão, Instituto Politécnico do Porto, Rua do Curral, Casa do Curral, Margaride, 4610-156 Felgueiras, Portugal)

  • Diogo Lourenço

    (Centro de Economia e Finanças (CEF.UP), Faculdade de Economia da Universidade do Porto, Rua Dr. Roberto Frias, 4200-464 Porto, Portugal
    Departamento de Economia e Gestão, Universidade Portucalense, Rua Dr. António Bernardino de Almeida 541, 4200-072 Porto, Portugal)

Abstract

This paper aims to analyze the impact of corruption on firm innovation in Portugal, using data from the World Bank Enterprise Surveys on 1062 firms for 2019. We employ regression analysis and instrumental variables techniques to account for endogeneity in the corruption variable. Our results show that corruption fosters innovation in Portugal, regardless of the dependent variable we use to measure innovation. We have also analyzed the effect of corruption on innovation in foreign and domestic firms. While corruption boosts innovation for domestic firms, we found that the effect is not statistically significant for foreign firms. Our conclusions are of interest to policymakers, as any measure intended to fight corruption should consider its impact on firm performance. As this article shows, such an impact need not be negative. Nevertheless, if mitigating the impact of corruption is still intended, our results indicate that measures promoting foreign direct investment could help achieve this.

Suggested Citation

  • Jorge Cerdeira & Diogo Lourenço, 2022. "Does Corruption Impact Firm Innovation? Evidence from Portugal," Economies, MDPI, vol. 10(7), pages 1-10, July.
    • Handle: RePEc:gam:jecomi:v:10:y:2022:i:7:p:173-:d:866333
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    References listed on IDEAS

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    1. Christian Bjørnskov, 2011. "Combating Corruption: On the Interplay between Institutional Quality and Social Trust," Journal of Law and Economics, University of Chicago Press, vol. 54(1), pages 135-159.
    2. Yuriy Gorodnichenko & Jan Svejnar & Katherine Terrell, 2010. "Globalization and Innovation in Emerging Markets," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 194-226, April.
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    5. Colin C. Williams & Abbi M. Kedir, 2016. "The Impacts Of Corruption On Firm Performance: Some Lessons From 40 African Countries," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 21(04), pages 1-18, December.
    6. repec:cup:jfinqa:v:46:y:2011:i:06:p:1545-1580_00 is not listed on IDEAS
    7. Fisman, Raymond & Svensson, Jakob, 2007. "Are corruption and taxation really harmful to growth? Firm level evidence," Journal of Development Economics, Elsevier, vol. 83(1), pages 63-75, May.
    8. Ruohan Wu, 2019. "Firm Development and Bribery: An Empirical Study from Latin America," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(1), pages 53-64, March.
    9. Ayyagari, Meghana & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2011. "Firm Innovation in Emerging Markets: The Role of Finance, Governance, and Competition," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(6), pages 1545-1580, December.
    10. Ha, Le Thanh & Thanh, To Trung & Thang, Doan Ngoc & Anh, Pham Thi Hoang, 2021. "Bribery, export decisions, and institutional constraints: Evidence from cross-country firm-level data," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 585-612.
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    Cited by:

    1. Petr Wawrosz, 2022. "How Corruption Is and Should Be Investigated by Economic Theory," Economies, MDPI, vol. 10(12), pages 1-23, December.

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