Combating corruption to fuel innovation: Evidence from emerging economies

Abstract

Fueling the drive against corruption enhances the credibility of institutions to enforce rules and regulations steadfastly and objectively, which is crucial for a thriving environment of economic activities and a sustainable future. This research posits that eliminating corruption eliminates obstacles to innovation. The analysis focuses on examining the relationship between firm and country-level data. The total dataset includes 24,166 firm observations from 41 emerging economies. To test the study's hypothesis, we employ regression estimation techniques, specifically ordinal and instrumental variable models. Empirical results indicate that control over corruption stimulates corporate innovation. The empirical findings testify that losing control over corruption reduces the involvement of firms in innovative activities. The data helps clarify that control of corruption strengthens institutional trust, lowers transaction costs and minimizes the risk of delay in granting certificates and permits. Moreover, a higher ethical environment fosters overall innovation in developing countries. This study provides empirical support for arguments that corruption is a moral and social phenomenon, and firms operating in countries with a robust ethical environment encounter less corruption. This reduced corruption leads to corporate innovation. Controlling corruption and promoting corporate innovation contribute to sustainability by creating an environment that encourages responsible business practices, stimulates technological advancements, and fosters collaborations.