Corruption and Product Market Competition: An Empirical Investigation

Abstract

We analyze the relationship between product market competition and corruption. The existing theoretical literature produces ambiguous implications for the sign of this relationship, making it an empirical issue. Unlike the existing empirical studies that use cross-country data, we test the relationship between competition and corruption using firm-level information. This approach overcomes serious estimation difficulties that result from relying on cross-country data. Contrary to the existing work, we show that greater product market competition is typically associated with greater corruption.