Revisiting the Missing Middle: Production and Corruption

This paper investigates empirically the relationship between firm size and production efficiency, and the relationship between firm size and the likelihood of paying bribes using firm-level data from Vietnam. Our analysis indicates that middle-sized firms’ production efficiencies tend to be lower than small-sized or large-sized firms in most of the manufacturing industries, and as firm size increases, the likelihood of paying bribes also increases. Firm size distribution has been a particular concern of economists for almost a century, and more recently, there has been increasing interest in the firm size distribution of developing nations, particularly the missing middle phenomenon, which refers to the fact that the distribution of firm size in developing countries tends to be bimodal. Our empirical results shed light on the relationship between firm size, production and corruption, and provide insights into these relations.