The pros and cons of corruption of firm performance : a micro-level study of businesses in Indonesia

Over the past 10 years, different international organization and NGO's have given birth to a whole host of different anti corruption programs in response to the recent "endemic" of corruption which is seen to plague developing countries in the world today. Behind the formation of these new programs is a clear international consensus that corruption, though not a new phenomenon, is one of the main reasons for economic stagnation in much of the developing world. The reasons for this "sudden" realization among the development community are both empirical and political. Empirically, new quantitative studies on corruption have shown that corruption is negatively correlated with GDP growth, foreign direct investment, human development, and the list goes on. Conversely, more corruption, according to some anti corruption actors, kills babies. In light of the main stream literature, this paper seeks to examines the connection between corruption and firm performance in Indonesia, a country which by most accounts is historically one of the most corrupt in Asia, yet has sustained one of highest long term GDP growth rates in the world for almost 30 years. This paper assumes that, rather than being what the World Bank calls a "cancer on development", this paper argues that corruption is a cultural manifestation, which underlies the business processes involved in economic development. Corruption may be damaging or helpful for development, though any outcome is context specific. By analyzing more closely the current and historical dynamics between state and private agents, this paper explains how corruption, long term economic development and efficient business practices are not mutually exclusive.