The Differential Effect of Corruption on Growth : Does Firm Origin Matter?

I investigate whether the impact of firm-level corruption on growth varies based on origin of the firm. More specifically, I examine how corruption in the business environment affects growth for privatized former state-owned enterprises (SOEs) and originally private firms in transition economies. Employing Business Environment and Enterprise Performance Survey (BEEPS) data and using a sample of 15,103 unique firms in 30 Eastern European and Central Asian countries, I find that corruption hampers growth for private firms, but is not detrimental for privatized firms. In fact, some evidences suggest that corruption helps privatized firms growing faster. Privatized firms' connections with corrupt public officials, politicians, and state-owned financial institutions seem to induce corruption that benefits both parties. Corruption may keep inefficient privatized firms in operation affecting the free market mechanism adversely in transition economies