Do Innovative Firms Find Corruption to be a Bigger Problem than Non-Innovative Firms? Evidence from African, Latin American and Caribbean Countries

Abstract

The goal of this research is to measure the difference in degree by which corruption presented an obstacle to firms that did or did not innovate. Using cross sectional data from the World Bank Enterprise Survey covering 26 African and Latin American/Caribbean countries in 2006, this study looks at 7,776 innovative firms, defined as a firm that has introduced a new product or service in the past three years. This study finds that when a non-innovating firm decides to innovate, it will likely find corruption to be a bigger obstacle to their operations. This discovery is robust when controlling for country level heterogeneity through fixed effects. The addition of control variables concerning education and the firm characteristics of size, access to finance, exports and market competition did not result in a large change in results.