Greasing the wheels? The impact of regulations and corruption on firm entry

By Axel Dreher, M. Gassebner. Public Choice, 2011

699 citations recorded by the source corpus.

This paper investigates the question of whether corruption might ‘grease the wheels’ of an economy. We investigate whether and to what extent the impact of regulations on entrepreneurship is dependent on corruption. We first test whether regulations robustly deter firm entry into markets. Our results show that the existence of a larger number of procedures required to start a business, as well as larger minimum capital requirements are detrimental to entrepreneurship. Second, we test whether corruption reduces the negative impact of regulations on entrepreneurship in highly regulated economies. Our empirical analysis, covering a maximum of 43 countries over the 2003–2005 period, shows that corruption facilitates firm entry in highly regulated economies. For example, the ‘greasing’ effect of corruption kicks in at around 50 days required to start a new business. Our results thus provide support for the ‘grease the wheels’ hypothesis.

Subfields: Accounting, Economics and Econometrics, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/9bc9ba94f06d69cb5d61928aaaab4696f848dce6

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Citations in the corpus

The role of entrepreneurship in stimulating economic growth in developed and developing countries (2018, background): “…body of literature on entrepreneurial research at the country level that has explored issues such as the relationship between entrepreneurial activity and technological change (Ács & Varga, 2005) as well as impact of corruption on entrepreneurship (Dreher & Gassebner, 2013; Dutta & Sobel, 2016).”
Corruption and bank risk-taking: Evidence from emerging economies (2015, positive): “Dreher and Gassebner (2013) find that corruption reduces the negative impact of regulations on entrepreneurship in highly regulated economies.”
Taxes, corruption, and entry (2016, neutral): “2010; Dreher and Gassebner 2013).”
Institutions, Entrepreneurship, and Economic Growth: What Do We Know and What Do We Still Need to Know? (2016, neutral): “As such, all studies risk suffering from omittedvariable bias, which necessitates careful robustness analysis (cf. Dreher & Gassebner, 2013).”
Institutional factors, opportunity entrepreneurship and economic growth: Panel data evidence (2016, background): “Dreher and Gassebner (2013) find that corruption reduces the dynamic of entrepreneurial entry.”
Does corruption ever help entrepreneurship? (2016, positive): “For example, using data for 43 countries from 2003 through 2005, Dreher and Gassebner (2013) find that corruption is beneficial in highly regulated economies (specifically those with a higher number of procedures required to start a business and a larger minimum capital requirement).”