Entrepreneurship and bribery in a transition economy. Theory and firm-level evidence in Vietnam

PhD ceremony: Mr. P.A. Tu, 14.30 uur, Academiegebouw, Broerstraat 5, Groningen

Dissertation: Entrepreneurship and bribery in a transition economy. Theory and firm-level evidence in Vietnam

Promotor(s): prof. H. van Ees

Faculty: Economics and Business

Firm-level causes and consequences of bribery remain an underexplored area of research in general and for transition economies in particular. In the context of Vietnam, this thesis offers three main insights that enable to understand why some firms more than others are involved in bribery, and how this may be related to their performance.

First, I show that both internal forces (such as firm age) and external forces (such as competition) determine the likelihood of bribery. Second, this study reveals that particular characteristics of an entrepreneur’s personal network determines bribery incidence. More in particular, strong ties with local government officials may increase bribery and strong ties with central government officials may decrease bribery. Third, evidence is provided that the relationship between bribery and firm performance is complex and can best be represented as an inverted U-shaped relationship.

This implies that relatively small bribes increase firm performance, whereas larger bribes have negative effects. Understanding the firm-specific dimensions of bribery is important as guidance for developing government policies that aim to reduce bribery in transition economies. Entrepreneurs may view bribes as an investment needed to operate successfully in institutionally weak economies. At the macro level may crowd out alternative investments and erode incentives. To limit corruption, governments should aim to improve the institutional environment in general and the local government quality in particular.