Innovation and Perceived Corruption: A Firm-Level Analysis for India

Do perceived obstacles about corruption matter for Indian firms when it comes to their probability to innovate? Using World Bank Enterprise Survey firm-level data, we show that a unit rise in corruption perception of firms in India lowers innovation rate by about 1 percent. The result is important in terms of policy implementation because recent studies have shown that perceived obstacles can affect firms' probability to innovate. Such analysis is missing in the Indian context where both big and petty corruption is rampant. Our results further show that perceptions about financial barriers matter only when firms also view corruption to be bad. Perceived difficulty in accessing credit in conjunction with corruption perception lowers probability of innovation by 4 percent. This is also true for nonfinancial perceived obstacles of firms. The results remain robust to alternate identification strategies.