Corruption and types of innovation: evidence from post-Soviet countries

Abstract

In the view of a missing consensus on how corruption relates to firm innovation, this paper empirically studies the relationship between petty corruption and product, process, marketing and organizational innovations in post-Soviet region. Exploiting cross-sectional firm-level data from the fifth round of Business Environment and Enterprise Performance Survey (BEEPS V), the paper finds that bribery increases the probability of introducing all four innovation types in the overall post-Soviet region. Considering variations in institutional development levels, the paper distinguishes three clusters of countries within the region respect to the quality of institutional structures based on Worldwide Governance Indicators (WGI) data of World Bank. Results reveal that bribery “greases the wheels” of only organizational innovation in the countries with strong institutional environment. The paper suggests that while the quality of institutions are good enough to prevent using bribery as a tool to foster product, process and marketing innovations, there is still room for improving institutions concerning organizational innovation. In the countries with moderate institutions, the correlation between bribery and product innovation is positive and statistically significant. Institutions concerning product innovations ought to be strengthened in this country cluster. Similar to the overall post-Soviet region, bribery encourages all four innovation types in the countries with weak institutional structures. So, fight against corruption needs to be braced and institutions should be improved to adhere global standards in order to halt corruption’s positive link to firm innovation.