Revisiting the relationship between corruption and innovation in developing and emerging economies

This study estimates the relationship of institutional (judicial and political) and monetary (petty and grand) dimensions of corruption with six different types of innovations. Using cross country firm level data from World Bank Enterprise Survey for 16 developing and emerging economies, the study reveals that, in most of the cases, monetary dimensions of corruption grease the wheels of the innovations involving interactions with public offices and have an insignificant or negative association in opposite cases. Results show that corruption is disproportionately associated with the innovative activities of firms operating in different industrial groups devised as per Castellacci (Research Policy, 37(6), 978–994, 2008). Interestingly, both monetary dimensions of corruption are positively correlated with major innovation indicators in SMEs. Large firms are more the victims of the monetary corruption. Furthermore, innovation in the services sector is more harmed by petty corruption than is innovation in the manufacturing sector. Services firms seem to be taking advantage of grand corruption. Judicial corruption is found to be positively associated with most of the innovation indicators, highlighting the loopholes in the judicial system. Moreover, political corruption benefits both SMEs and large firms in most of their innovative activities. In the end, the study provides important policy insights from the analysis.