Analyses of Corruption and Productivity with Empirical Study in Vietnam

This paper develops a model to analyze bribery under heterogeneous firms’ productivity. In the static setting, we show that there are four possible regimes in equilibrium where firms’ bribery depends on their productivity and fundamental variables, including the state capacity. In the dynamic setting, we show that the regime in which more productive firms pay bribes converges to the regime with no bribery, while the regime where all firms pay bribes does not change. We also show that, unlike in the latter case, output increases over time in the former case. Finally, to test the validity of our theoretical results, we apply the methodology in Ackerberg et al. (2015) while including a bribery variable to a dataset of Vietnamese manufacturing firms between 2005 and 2015. We find a statistically significant and positive relationship between productivity and the likelihood of paying bribes, coinciding with one of the equilibrium regimes shown in our theoretical analysis.