Corruption research in economics has a long history. Seminal early articles, and older findings contrast with newer developments which have as yet not been measured empirically; in particular the link between corruption and innovating activities suffers from multiple results, on both a national country and company or firm level. This paper examines the corruption-innovation link in transition and emerging countries as the decision to corrupt, and the ability to innovate may not be independent. An endogenous switching regression model is advocated as a suitably methodological way of modeling the joint determination of a firm’s innovation and possible bribes as it implies not only a selection between corrupted and non-corrupted firms, but also heterogeneous effects on innovative activities. The paper shows that, when the selection effect is adequately considered, different firms’ strategies arise. In particular, the treatment effect of corruption on innovation is positive for corrupting firms and negative for non-corrupting firms. Corrupting firms appear rational because paying bribes increases their innovative activities. However, non-corrupting firms also appear rational because in the presence of bribes, their innovating activities would be fewer. Thus, when the selection effect is adequately considered, the effects of so-called “greasing-and-sanding-the-wheels” can co-exist. Finally, the role of competition is also considered. Building on these results, future research can move forward to re-examine economic outcomes such as the productivity or the economic impact of corruption, in the presence (or absence) of selection processes.

This study examines the impact of corruption on business innovation from a comparative perspective and shows that this relationship is inherently heterogeneous across firms and countries. It addresses two main research questions: (i) Does corruption facilitate or hinder innovation in the countries studied? (ii) To what extent is the relationship between corruption and innovation mediated/shaped by countries’ institutional configurations and firm characteristics (foreign and domestic ownership)? We analyze data from the fifth and sixth waves (2012–2016 and 2018–2019) of the EBRD’s World Bank Business Environment and Enterprise Performance Survey (BEEPS), using a balanced panel of 3584 establishments in 22 Eastern European and Central Asian economies. The results provide two key insights into the relationship between corruption and innovation. First, the institutional setting plays a crucial role in shaping both the strength and the direction of this relationship, for example, when comparing EU and non-EU countries. Second, the impact of corruption at the firm level varies depending on the ownership structure: the ‘greasing’ effect is particularly relevant for foreign firms operating in weak institutional environments, but appears to be ineffective—if not ‘sanding’—for foreign firms in contexts with stronger anti-corruption controls.

A large body of researches in recent years resulted in the growth of knowledge about better or worse management practices. However, comparative research using firm-level data has been limited by the different styles on management and by the unavailability of homogeneous data sources, especially in former transition and Asian countries. This study fills this gap, by using the firm-level survey by EBRD and World Bank (BEEPS V-MENA ES, 2012-2014) and by looking at the determinants of a Management quality score (MQS) for more than 17.000 firms in 36 countries of Central Asia, Eastern Europe and Northern Africa. We find that both country and firm characteristics matter for managerial skills but the ladder weight differently. In fact, the country-grouping changes, accelerates or dampens the impact of firms’ characteristics on management performance and identifies the channels conducive of better managerial practices. Competition, education, and technology are important channels for the high-income countries only, whereas global value chain participation and ownership are significant channels for the low-income countries only. In particular, GVC participation enhances significantly managerial practices of firms in low-income countries especially for the lower quartile firms. Hence, this study provides empirical support for interplay between country and firm characteristics in transitional and emerging markets. In addition, it provides support for an enhanced connection between business environment reforms devoted to managerial upgrading and industrial policy devoted to enhancing best-performing firms’ characteristics. As such, it suggests that only their complementary and targeted use can support management and business practices upgrading.

This study examines the impact of corruption on innovation in businesses from a comparative standpoint, demonstrating that the relationship is undoubtedly heterogeneous between businesses and nations. There are two primary research questions addressed: i) In the countries under inspection does corruption help or hinder the innovative activities? ii) To what degree is the institutional framework and business strategy (domestic and international presence) influencing the relationship between corruption and innovation? We use the V and VI surveys (2012–2016 and 2018–2019) of EBRD-World Bank Business Environment and Performance Survey, with a balanced panel with 3584 establishments across 22 countries, economies of Eastern Europe and Central Asia. The findings show two key points about the link between corruption and innovation: (1) the importance of institutional settings for the link’s strength and even direction when EU and non-EU countries are compared and (2) the diverse effects of corruption at the firm-level, when foreign and domestic ownership is considered: the “greasing” effect is particularly relevant for foreign firms in weak institutional environments but appears useless, if not sanding, for foreign firms in settings with stronger controls over corruption.