Regulatory Context and Corruption: Rethinking the Effects of Government Intervention

Abstract

We examine relationships between regulatory environment and government intervention in firms' decisions and corruption perception indexes (CPI). We draw from a large sample survey conducted by the World Bank on the impact of regulatory environment on firms' growth. The study also focuses on government interventions through regulations in firms' operational and strategic decisions. The study uses the World Business Environment Survey 1999-2000 database. Our findings indicate that whereas intervention in certain regulatory and decision areas increases the likelihood of deterioration of CPI for liberal market economies and coordinated market economies, in some cases intervention decreases the likelihood of CPI deterioration for transitional economies, particularly those are categorized as highly corrupt countries.