Is corruption really harmful to growth? Evidence from Zimbabwean firms

Abstract

Using firm level data from 599 Zimbabwean firms which were surveyed in 2011 by the World Bank, the study empirically investigated the effects of corruption on firm level economic activities in the case of firms operating in manufacturing, retail and services sectors. The research made use of Econometrics. The results from the combined sample indicate that both capital stock and labour are positively related to a firm's level of productivity. Considering the three variables of our main interest, national corruption (GLOBAL) was the only variable which was found to be positively and significantly related to a firm's productivity. This implies that, in the case of Zimbabwean firms, national corruption enhances their productivity. Overall, the result supports the hypothesis that corruption is a 'grease' which lubricates the 'squeaky wheels' of bureaucratic, rigid administration and inefficient governments particularly those of the developing world. The sectoral results show that across the three sectors, capital-labour ratio is significant and is a positive sign as expected from economic theory. The variants of corruption indicated some mixed results depending on the sector. In the case of the manufacturing sector, both global corruption and unfair courts negatively affect productivity. Whilst national corruption at national level negatively affects firm production, local corruption does not impact on firm productivity given that its coefficient is not statistically significant. The tabulated results indicate that national corruption reduces the productivity of firms who pay bribes by 0.17% when compared to firms which do not engage in such activities. For the retail sector, the impact of national corruption (GLOBAL) is insignificant, while local corruption impacts negatively and in a significant manner. The regression results indicate that local corruption positively impact on the services sector.