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Corruption and the Local Business Environment: Insights from SMEs in 29 Philippine Cities
Abstract
This paper contributes to the international evidence on the possible factors linked to corruption using data on over 1,700 small and medium scale enterprises (SMEs) in 29 Philippine Cities covered by the 2009 Asian Institute of Management (AIM) Enterprise Survey. The results suggest that corruption appears to be linked to conditions that affect Philippine SMEs in a very pernicious way — more corruption is reported by firms located in cities with very poor business environments and weak provision of public goods. For instance, bribery reported among those who obtained their business permits 30 days late is 1.23 times compared to those that receive their permits on the same day.
... Obviously, corruption usually goes along with a poor business environment, and vice versa. For instance, SMEs in the Philippines operating in cities with poorer business environment are more likely to be affected by corruption (Mendoza & Bancolita, 2013). It is supported by the study of Nguyen and Van Dijk (2012) that the quality of local public governance, including regulatory entry costs, land access, and the implementation and consistency of policies, plays a crucial role in determining the level of corruption. ...
... However, the evidence is inconclusive relating to productivity. On the other hand, bribing has a positive effect on the firms' exports and product innovation Mendoza and Bancolita (2013) 1700 SMEs in 29 the Philippines More corruption is reported by firms located in cities with very poor business environment and weak provision of public goods ...
Corruption is fought by governments in both developing and developed countries because it can harm economic development. However, it has raised the question of why it still exists at a high level in emerging markets like Vietnam. With the data from surveys of the World Bank, Vietnam Competitive Initiative, and Vietnam Chamber of Commerce and Industry, this study provides details of the impact of corruption on firm growth and the effect of business environment on corruption at the firm‐perceived level across different firm ownership identities, namely state‐owned enterprise (SOE), shareholding enterprise (SHE), and foreign‐owned enterprise (FOE), in Vietnam. We demonstrate that corruption has a negative effect on the growth of firms with SHEs, FOEs, and non‐SOEs but a positive effect in SOEs. We also document that the difference in the levels of corruption across different provinces can be influenced by the quality of the local business environment, but again, those impacts are heterogeneous in firms with different ownership identities.
In the past decade, the World Bank has promoted improving business environments as a key strategy for development, which has led to a significant effort in collecting surveys of the investment climate at the firm level across countries. The author examines the lessons that have emerged from the papers using these new data. The key finding is that the effects of business environments are heterogeneous and depend crucially on industry, initial conditions, and complementary institutions. Some elements of the business environment, such as labor flexibility, low entry and exit barriers, and a reasonable protection from the "grabbing hands" of the government, seem to matter a great deal for most economies. Other elements, such as infrastructure and contracting institutions (that is, courts and access to finance), hinge on their initial status and the size of the market. © The Author 2010. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development/The World Bank. All rights reserved.