Business Corruption and Economic Prosperity

Abstract

Prior literature shows that government corruption mostly hurts poorer economies, whereas recent events, including the 2008 U.S. economic crisis, suggest that business corruption may harm growth in wealthier economies. Using multinational surveys in which citizens communicated their perceptions of corruption levels in both the private and the public sectors, we examine the extent of business corruption relative to government corruption in countries and its relation to economic prosperity. We find that citizens of wealthier countries report higher business corruption than citizens of poor countries, and relatively low government corruption. Business corruption is evidently a greater concern to citizens of wealthier countries. Furthermore, we find that an increase in perceived business corruption is associated with a decrease in income per capita mainly in wealthy countries. In wealthier economies, business trust has a larger role, and perceived business corruption has a stronger effect on growth. Finally, our evidence suggests that an increase in perceived business corruption leads to increase in regulation, and the marginal effect of the regulation on growth is positive.