Corruption Determinants in Developing Countries

Corruption is an inseparable part of economic activities especially in developing economies. Previous research studied the determinants of the corruption in a number of countries, placing separate emphasis on certain institutions such as the financial institutions, tax institutions and legal institutions. This paper studied the issue of the determinants of corruption by using an integrated data set from World Business Environment Survey (WBES), which contains information on all these aspects. We tested for potential causes that induces firms engaging in corrupt activity. The method is empirical as we use OLS regression to determine the relationship among corruption and independent variables such as bribery, regulation, sales growth, informality, financing, crime, age and gender. We found that the regulation, bribery activity, using informal financing methods to fund firms’ investment, and decrease in firms’ sales growth are the most significant determinants of corruption within our sample developing countries. Additionally, firm size is negatively correlated with the propensity to engage in a corrupt activity.