Title

Cross‐country evidence of corruption spillovers to formal and informal entrepreneurship

Document Type

Article

Publication Date

2020

Department/School

Economics

Publication Title

Contemporary Economic Policy

Abstract

© 2019 Western Economic Association International Using cross-country data this paper examines the spillovers of corruption to formal and informal entrepreneurship in neighboring countries. Whereas research has shown that entrepreneurs move underground to escape corruption, we argue that entrepreneurs may also seek refuge in neighboring countries. Indeed, the empirical results show that in response to a ceteris paribus increase in corruption in neighboring countries formal entrepreneurship increases in the home country with no effect on informal entrepreneurship. This is consistent with entrepreneurs circumventing corrupt public officials by immigrating to countries with presumably less corruption. These results withstand a battery of robustness checks. (JEL D73, L26).

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