Business Management Training Reduces Corruption in Emerging Markets

Revised

October 20, 2023

First page of Laser Pulse Evidence Brief: Business Management Training Reduces Corruption in Emerging Markets. USAID, Purdue University and Duke Center for International Development logos. — View the brief

By Edmund Malesky and Tuan-Ngoc Phan

View the "Business Management Training Reduces Corruption in Emerging Markets" Evidence Brief

Corruption harms economic growth, impedes investment, damages public service delivery, and endangers public safety, but scholars and practitioners have struggled to find solutions to ameliorate the problem or even mitigate its effects in many developing countries. To combat corruption, analysts often point to restraining the grabbing hand of government through reforms designed to constrain politicians and bureaucrats and hold them accountable. While some successes have been achieved, these types of institutional solutions are hard to achieve without the acquiescence of the officials that the policies are intended to constrain, which limits their efficacy. Such supply solutions also underestimate the role of private business actors as initiators of corruption, viewing them as perpetrators rather than victims.

In a brand-new research project funded by USAID through the LASER PULSE mechanism, we suggest that businesses may proactively engage in regulatory-related bribery for two reasons not appreciated in the literature. First, uncompetitive firms resort to cutting corners as a way to level the playing field with more productive competitors, and, as a result, must bribe inspectors to ignore regulatory violations (the productivity hypothesis). Second, in businesses with weak managerial control, subordinates may commit bribery for their own pecuniary gain, without the knowledge of top managers (the internal controls hypothesis). As a result, we argue that improving firm productivity can reduce their incentives to bribe and business-to-government bribery.

This Evidence Brief was produced by the Do Better Managers Engage in Less Corruption? project. The project was supported by the United States Agency for International Development (USAID) through the LASER PULSE mechanism. The views expressed in this publication do not necessarily reflect the views of USAID and the United States Government.