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Does Corruption Discourage Entrepreneurship?

Authors
Park, DonghyunShin, Kwanho
Issue Date
2022
Publisher
MIT PRESS
Citation
ASIAN ECONOMIC PAPERS, v.21, no.3, pp 40 - 59
Pages
20
Indexed
SSCI
SCOPUS
Journal Title
ASIAN ECONOMIC PAPERS
Volume
21
Number
3
Start Page
40
End Page
59
URI
https://scholar.korea.ac.kr/handle/2021.sw.korea/145587
DOI
10.1162/asep_a_00855
ISSN
1535-3516
1536-0083
Abstract
Although entrepreneurship plays a key role in economic development its precise effect remains largely unknown. This is because it is challenging to objectively measure entrepreneurship and identify its determinants. In this paper, we analyze the effect of a particular feature of the institutional landscape, namely, corruption, on entrepreneurship. It is expected that corruption discourages entrepreneurship because it undermines fair competition. We use two proxies for entrepreneurship that are widely used in the literature: (1) nascent entrepreneurship collected from Global Entrepreneurship Monitor, and (2) entry rate defined as the number of new firms divided by the total number of previous year's registered businesses, collected from World Bank Group Entrepreneurship Survey. We find that better control of corruption promotes entrepreneurship. Our evidence is stronger when we use entry rate as a proxy of entrepreneurship. Our findings are preserved when we add other determinants of entrepreneurship drawn from the literature. When we use legal origins as instruments for corruption, our results remain essentially the same. The size of population, a proxy for market size, is positively associated with entrepreneurship while corporate taxes are negatively associated.
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College of Political Science & Economics (Department of Economics)
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