Academic journal article E+M Ekonomie a Management

Perceived Corruption in Business Environment: Exploring the Underlying Causes

Academic journal article E+M Ekonomie a Management

Perceived Corruption in Business Environment: Exploring the Underlying Causes

Article excerpt


Business environment is an important determinant of national competitiveness and sustainable long-term economic growth. Business environment quality determines the risk as well as returns from investment and therefore affects investment decisions.

The business environment is largely, if not totally, beyond the control of the Arms and their management. It results from existing political, legal and regulatory framework; macroeconomic policies; institutional infrastructure; social and cultural context within which transactions take place, the quality of physical and social infrastructure and many other factors. Empirical research has shown that corruption represents a serious obstacle to entrepreneurship and business (Kaufmann & Wei, 2000; Meon & Sekkat, 2005). Hellman et al. (2000) consider corruption, in addition to governance quality and state capture, a factor that significantly shapes business environment in transition countries.

Government has a vital role in creating and ensuring the stable and healthy socio-economic environment for businesses. By ensuring lower transaction costs on individuals and firms, well-regulated business environment allows them to operate more efficiently. According to Guriev (2004) corruption and poor institutions are key determinants of existing poor regulation and misgovernance. Breen and Gillanders (2012) consider a country's existing stock of regulation as a product of its recent history of institutional quality and corruption. Main findings of their research show that the level of corruption is the most important factor that determines the quality of the business environment, trumping the quality of institutions and a range of other indicators. Therefore, development and implementation of appropriate strategies, focused on continuous improvement of business environment are of great importance.

Although some authors justify corruption on the ground that it helps firms to deal with obstacles caused by inefficient public administration (Dreher & Gassebner, 2013; Leff, 1964), corrupt business environment forces firms to allocate significant part of their human, financial and other resources to corrupt practices instead of focusing on innovation and development. Large companies are in better position because they have resources and capacities to protect their business interests and cope with corruption, while small and medium-sized enterprises are more strongly affected by corruption. There is also evidence that the extent of corruption varies in different regions of the same country (Linhartova & Volejnikova, 2015). This study tends to contribute to the literature on the causes of corruption. Particularly, we empirically test the relevance of various determinants of corruption in the business environment, on the example of a single transition economy. Serbia is a country where corruption is perceived as a major impediment to investing and doing business efficiently (Stosic, Nikolic, & Dukic, 2011). In our analysis, we use data on the perceptions of corruption throughout Serbian business environment, as well as the real cases of corruption, in the form of informal payments or gifts for various purposes. We investigate to what extent corruption represents an obstacle to business transactions and offer potential explanations of the determinants of such attitudes.

The paper is organized as follows. Section 1 presents a brief overview of the main findings of the literature on corruption, its determinants and the impact on the business environment. Section 2 describes the data sources and explains the proposed methodological procedures. In sections 3 and 4, the results of empirical tests are presented and discussed. The paper ends with a summary of the main findings.

1. Literature Review

Corruption is a complex social phenomenon that has a long history. Forms, causes, mechanisms and conseqences of corruption represent a popular subject of scientific inquiries (Mauro, 1995; Paldam, 2002; Rose-Ackerman, 1999; Shleifer & Vishny, 1993). …

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