Corruption and firms’ efficiency: international evidence using an instrumental variable approach

Abstract Using a sample of firms over the 2002–2010 period relative to US, Europe, and Japan, this paper investigates effects control corruption on firms’ efficiency. Our econometric analysis is developed into two main steps. In first step, we rely application Stochastic Frontier Analysis (SFA) estimate firm-level We then regress derived efficiency scores against International Country Risk Guide (ICRG) indicator, through an Instrumental Variable approach, where ICRG index instrumented using measure ethnolinguistic fractionalization. The evidence reported in indicates that improved systematically enhances also direct which assess impact R&D expenditures number registered patents show stimulates both these dimensions innovation, though higher, magnitude significance, for patents. paper, robust alternative specifications production technology, instrumentation strategy aggregation information, brings relevant implications terms policy.