GREASE OR SAND THE WHEEL? THE EFFECT OF INDIVIDUAL BRIBES ON THE DRIVERS OF AGGREGATE PRODUCTIVITY GROWTH

https://doi.org/10.22146/jieb.6532

Julien Hanoteau(1*), Virginie Vial(2)

(1) Aix-Marseille University
(2) Aix-Marseille University
(*) Corresponding Author

Abstract


The Asian paradox suggests a net grease-the-wheel effect of corruption. Under the assumption of diminishing returns to bribes, going beyond the single-representative-firm assumption, we argue that the grease and sand-the-wheel effects are likely to co-exist among a large number of firms, and that the industrial effect of corruption depends on the productivity drivers that fuel firm’s dynamics. We decompose Indonesian manufacturing labor productivity growth while contrasting and comparing the contributions of no-, low- and high-bribing firms over the period 1975-94. We confirm the coexistence of grease and sand-the-wheel effects. Industrial productivity gains stem first from the net entry of non-corrupted firms, evidencing a sand-the-wheel effect. Market share reallocation from low to high productivity growth incumbents paying low bribes is the second source of productivity growth, pointing at a grease-the-wheel effect. Intra- plant productivity growth is overall negative and largely attributable to high-corruption plants, suggesting a sand-the-wheel effect.

Keywords


corruption, bribery, productivity

Full Text:

PDF PDF


References

Aghion, P., Bloom, N., Blundell, R., Griffith, R., & Howitt, P., 2005. “Competition and innovation: An inverted U relationship”. Quarterly Journal of Economics, 120(2): 701–728.

Anand, V., Ashforth, B. E., & Joshi, M., 2005. “Business as usual: The acceptance and perpetuation of corruption in organizations”. Academy of Management Executive, 19(4): 9–23.

Arnold, J., Nicoletti, G., & Scarpetta, S., 2008. “Regulation, allocative efficiency and productivity in OECD countries: Industry and firm-level evidence”. Working Paper 616. OECD Economic Department.

Alesina, A., Ardagna, S., Nicoletti, G., & Schiantarelli, F., 2005. “Regulation and investment”. Journal of the European Economic Association, 3(4): 791–825.

Bailey, D.H., 1966. “The effects of corruption in a developing nation”. Western Political Quarterly 19(4): 719–732. Reprint in: Heidenheimer A.-J., Johnston M. & LeVine V.-T. (Eds.). 1989. Political corruption: A handbook: 934–952. Oxford: Transaction Books.

Baily, M.N., Hulten, C., & Campbell, D., 1992. “Productivity dynamics in manufacturing plants”. Brookings Papers on Economic Activity, Microeconomics: 187–249.

Bardhan, P., 1997. “Corruption and Development: A Review of Issues”. Journal of Economic Literature, 35: 1320-1346.

Bartelsman, E., Haltiwanger, G., & Scarpetta, S., 2009. “Cross-country differences in productivity: The role of allocation and selection”. NBER Working Paper 15490. Basri, M.C., 2001. “The Political economy of manufacturing protection in Indonesia, 1975–1995”. Unpublished doctoral thesis, Australian National University, Canberra.

Baumol, W., 1990. “Entrepreneurship: productive, unproductive and destructive”. Journal of Political Economy, 98: 893–921.

Beck, P.- J., & Maher, M.-W., 1986. “A comparison of bribery and bidding in thin markets”. Economics Letters 20(1): 1–5.

Behrman, J.R., & Deolalikar, A.-B., 1989. “Of the fittest? Duration of survival of manufacturing establishments in a developing country”. Journal of Industrial Economics, 38(2): 215–226.

Biro Pusat Statistik., 1996. Annual Manufacturing Survey Questionnaire, 1996. Available at: http://www.rand.org/labour/bps/statistik_industri.html, accessed Feb. 07, 2013.

Bjørnskov, C., 2003. “Corruption and social capital”. Working Paper 03-13. Department of Economics, Aarhus School of Business.

Bjørnskov, C., & Méon, P.-G., 2010. “Productivity of trust”. Working Paper CEB 10-042. Brussels University.

Butt, S., 2011. “Anti-corruption reform in Indonesia: an obituary?” Bulletin of Indonesian Economic Studies, 47(3), 381-394.

Dal Bó, E., & Rossi, M.-A., 2007. “Corruption and inefficiency: Theory and evidence from electric utilities”. Journal of Public Economics, 91: 939–962.

Dearmon, J., & Grier, R., 2009. “Trust and development”. Journal of Economic Behavior and Organization, 71: 210–220.

De Rosa, D., Gooroochurn, N., & Görg, H., 2010. “Corruption and Productivity Firm-level Evidence from the BEEPS Survey”. World Bank Working Paper 5348.

Dixit, A. 1989., “Entry and exit decisions under uncertainty”. Journal of Political Economy, 97(3): 620–638.

Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A., 2002. ”The regulation of entry”. Quarterly Journal of Economics, 117(1): 1–35.

Dreher, A., & Gassebner, M., 2013. ”Greasing the Wheels? The Impact of Regulations and Corruption on Firm Entry”. Public Choice, forthcoming.

Du, J., & Girma, S., 2010. “Red Capitalists: Political Connections and Firm Performance in China”. Kyklos, 63(4): 530–545. The Economist, 1993. Now for the hard part, April 17, Vol. 327, issue 7807.

Foster, L., Haltiwanger, J., & Krizan, C., 2001. “Aggregate productivity growth: Lessons from microeconomic evidence”. In New developments in productivity analysis: 303 – 372. Chicago: University of Chicago Press.

Goeltom, M., 1995. “Indonesia’s financial liberalization: An empirical analysis of 1981-88 panel data”. ISEAS Current Economic Affairs Series ASEAN Economic Research Unit, Institute of Southeast Asian Studies.

Hamilton-Hart, N. 2001. “Anti-corruption strategies in Indonesia”. Bulletin of Indonesian Economic Studies, 37(1): 65-82.

Hannan, M.T. 2005. “Ecologies of organizations: diversity and identity”. Journal of Economic Perspectives, 19(1): 51-70.

Hellman, J., Jones, G., & Kaufmann, D. 2003. “Seize the state, seize the day: state capture and influence in transition economies”. Journal of Comparative Economics, 31(4): 751-777.

Henderson, J.V., & Kuncoro, A., 2006. “Corruption in Indonesia. Unpublished manuscript. Kingston, C., 2005. “Social capital and corruption: Theory, and evidence from India”. Mimeo.

Kaufmann, D., & Wei, S.J. 1999. Does grease money speed up the wheels of commerce?” NBER Working Paper 7093.

Klapper, L., Laeven, L., & Rajan, R., 2006. “Entry regulation as a barrier to entrepreneurship”. Journal of Financial Economics, 82: 591–629.

Knack, S., & Keefer, P., 1997. “Does social capital have an economic pay-off? A cross-country investigation”. Quarterly Journal of Economics, 112: 1251–1288.

Kuncoro, A. 2004., “Bribery in Indonesia: Some evidences from micro-level data”. Bulletin of Indonesian Economic Studies, 40(3): 329–354.

Kwon, H., Narita, F., & Narita, M., 2009. “Resource Reallocation and Zombie Lending in Japan in the 90’s”. RIETI Working Paper 09052. Nihon University.

Lambson, V., 1991. “Industry evolution with sunk costs and uncertain market conditions”. International Journal of Industrial Organization, 9: 171–196.

Leff, N. 1964. “Economic development through bureaucratic corruption”. The American Behavioural Scientist, 8(2): 8-14.

Lui, F. 1985. “An equilibrium queuing model of bribery”. Journal of Political Economy, 93(4): 760-781.

Mauro, P., 1995. “Corruption and growth”. Quarterly Journal of Economics, 110(3): 681–712.

McLeod, R., 2000. “Soeharto Indonesia: A better class of corruption”. The Indonesian Quarterly, 28(1): 6–27.

Meschi, P.-X., 2009. “Government corruption and foreign stakes in international joint ventures in emerging economies”. Asia Pacific Journal of Management, 26(2): 241–261.

Méon, P.-G., & Sekkat, K., 2005. ”Does corruption grease or sand-the-wheels of growth? ” Public Choice, 122(1-2): 69–97.

Méon, P.-G., & Weill, L., 2010. ”Is corruption an efficient grease? ” World Development, 38(3): 244–259.

Murphy, K.M., Shleifer, A., & Vishny, R.-W., 1991. ”The allocation of talent: implication for growth”. Quarterly Journal of Economics 106(2): 503–530.

Park, S.H., & Luo, Y., 2001. ”Guanxi and organizational dynamics: Organizational networking in Chinese firms”. Strategic Management Journal, 22: 455–477.

Peng, M.W., & Luo, Y., 2000. ”Managerial ties and firm performance in a transition economy: The nature of a micro-macro link”. Academy of Management Journal, 43: 486–501.

Peltzman, S. 1976. “Towards a more general theory of regulation”. Journal of Law and Economics, 19(2): 211-240.

Rajan, R.G. & Zingales, L. 1998. “Financial Dependence and Growth”. American Economic Review, 88(3): 559-586.

Restuccia, D., & Rogerson, R., 2008. ”Policy distortions and aggregate productivity with heterogeneous establishments”. Review of Economic Dynamics, 11(4): 707–720.

Roberts, M.R., & Tybout, J.R. (Eds.), 1996. Industrial evolution in developing countries: Micro patterns of turnover, productivity and market structures. New York: Oxford University Press.

Robertson-Snape, F., 1999. ”Corruption, collusion and nepotism in Indonesia”. Third World Quarterly, 20(3): 589-602.

Robison, R., 1986. Indonesia: The rise of capital. London: Allen and Unwin.

Rock, M., & Bonnett, H., 2004. ”The comparative politics of corruption: Accounting for the East Asian paradox in empirical studies of corruption, growth and investment”. World Development, 32(6): 999–1017.

Rosa, J.-J., & Pérard, E., 2010. ”When to privatize? When to nationalize? A competition for ownership approach”. Kyklos, 63(1): 110–132.

Rose-Ackermam, S., 1999. Corruption and government: Causes, consequences and reform. New York: Cambridge University Press.

Schwarz, A., 2004. A nation in waiting: Indonesia’s search for stability. Singapore: Talisman Publishing.

Shleifer. A., & Vishny, R.W. 1993. “Corruption”. Quarterly Journal of Economics, 108: 599-617.

Stigler, G.J. 1971. “The theory of economic regulation”. The Bell Journal of Economics and Management Science, 2(1): 3-21

Štulhofer, A., 2004. ”Perception of corruption and the erosion of social capital in Croatia 1995-2003”. Politička misao, 41(5): 74–86.

Timmer, M., 1999. ”Indonesia’s ascent on the technology ladder: capital stock and total factor productivity in Indonesian manufacturing, 1975-95”. Bulletin of Indonesian Economic Studies, 35(1): 75–89.

Tybout, J.R., 2000. ”Manufacturing firms in developing countries: How well do they do, and why? ” Journal of Economic Literature, 38(1): 11–44.

Tybout, J.R., 1996. ”Heterogeneity and productivity growth: assessing the evidence”. In M.J. Roberts & J.R. Tybout (Eds.). Industrial evolution in developing countries: Micro patterns of turnover, productivity, and market structure: 43–72. New York: Oxford University Press.

Van der Eng, P., 2010. ”The sources of longterm economic growth in Indonesia, 1880-2007”. Explorations in Economic History, 47(3): 294–309.

Vial, V., & Hanoteau, J. 2010. “Corruption, manufacturing plant growth and the Asian paradox: Micro-level evidence from Indonesia”. World Development, 38(5): 693-705.

Wang, G., Jiang, X., Yuan, C.H., & Yi, Y-Q., 2013. ”Managerial ties and firm performance in an emerging economy: Tests of the mediating and moderating effects”. Asia Pacific Journal of Management, 30(2): 537–559.

Wei, S.-J., 2000. ”How taxing is corruption on international investors”. Review of Economics and Statistics, 82(1): 1–11.

Zhou, J.Q., & Peng, M. W., 2012. ”Does bribery help or hurt firm growth around the world? ” Asia Pacific Journal of Management, 29(4): 907-921.



DOI: https://doi.org/10.22146/jieb.6532

Article Metrics

Abstract views : 2837 | views : 2614 | views : 4343

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Copyright (c) 2014 Journal of Indonesian Economy and Business



Journal of Indonesian Economy and Business

Journal

Editorial Team
Focus and Scope
Peer Review Process
Publication Ethics
Screening for Plagiarism

Authors

Author Guidelines
Submission Guidelines
Online Submissions
Copyright Notice
Privacy Statement
Author Fees

Download

Author Pack
Submission Form & Manuscript Template

 

Reviewer

Reviewer Guidelines
Reviewer Acknowledgement

 

Reader

General Search
Achieves
Author index
Title index

 

 

The Journal of Indonesian Economy and Business (print ISSN 2085-8272; online ISSN 2338-5847) is published by the Faculty of Economics and Business Universitas Gadjah Mada, Indonesia. The content of this website is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License
© 2019 Journal of Indonesian Economy and Business 
 Visitor Statistics