Quarterly Journal of Political Science > Vol 3 > Issue 3

Predictable Corruption and Firm Investment: Evidence from a Natural Experiment and Survey of Cambodian Entrepreneurs

Edmund J. Malesky, Graduate School of International Relations and Pacific Studies, University of California–San Diego, emalesky@ucsd.edu Krislert Samphantharak, Graduate School of International Relations and Pacific Studies, University of California–San Diego, krislert@ucsd.edu
 
Suggested Citation
Edmund J. Malesky and Krislert Samphantharak (2008), "Predictable Corruption and Firm Investment: Evidence from a Natural Experiment and Survey of Cambodian Entrepreneurs", Quarterly Journal of Political Science: Vol. 3: No. 3, pp 227-267. http://dx.doi.org/10.1561/100.00008013

Published: 24 Oct 2008
© 2008 E. J. Malesky and K. Samphantharak
 
Subjects
Political corruption,  Political economy,  Comparative politics
 

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In this article:
Predictability of Corruption and Firm Investment
Panel Analysis of the Impact of Changing Governors on Firm Investment
Politics Behind the Replacement of Provincial Governors
Empirical Analysis of Changes in Provincial Governor
Do Changes in Governor Affect Investment Through Channels Other than Corruption?
Conclusion
References

Abstract

This paper utilizes a unique dataset of 500 firms in ten Cambodian provinces and a natural experiment to test a long-held convention in political economy that the predictability of a corruption is at least as important for firm investment decisions as the amount of bribes a firm must pay, provided the bribes are not prohibitively expensive. Our results suggest that this hypothesis is correct. Firms exposed to a shock to their bribe schedules by a change in governor invest significantly less in subsequent periods, as they wait for new information about their new chief executive. Furthermore, the amount of corruption (both measured by survey data and proxied by the number of commercial sex workers) is significantly lower in provinces with new governors. Our findings are robust to a battery of firm-level controls and province-level investment climate measures.

DOI:10.1561/100.00008013

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DOI: 10.1561/100.00008013_supp