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Study Reveals Surprising Link Between Corruption and Innovation in Portuguese Firms

A recent study has found that corruption can have a significant impact on innovation in firms, with domestic companies experiencing a boost in innovative activity while foreign-owned businesses are not affected.

The Research

The research, conducted by a team of economists, analyzed data from over 1,000 firms in Portugal using a novel dataset from the World Bank. The study found that firms that operate in environments where corruption is prevalent are more likely to engage in innovative activities, such as researching and developing new products or processes.

The Impact on Innovation

However, the impact of corruption on innovation was found to be dependent on the type of firm. Domestic companies operating in Portugal were found to benefit from corruption, with innovation rates increasing in response to corrupt practices. In contrast, foreign-owned firms did not experience a significant effect from corruption.

Why the Difference?

The study’s authors suggest that this may be because domestic firms are more likely to be able to take advantage of corruption to overcome bureaucratic or regulatory obstacles, while foreign firms may be less able to do so due to their outsider status.

Implications for Policymakers

The findings have important implications for policymakers in Portugal, where there are ongoing efforts to combat corruption. The study’s authors argue that any measures taken to reduce corruption should consider the potential impact on firm performance and innovation.

Strategies for Reducing Corruption

One potential strategy could be to encourage foreign direct investment (FDI) as a way of reducing the impact of corruption. By attracting more foreign firms to the country, Portugal may be able to dilute the influence of corrupt practices and promote a more level playing field for all businesses.

Future Research Directions

The study’s authors also suggest that future research should focus on replicating their analysis using panel data, which would allow them to examine changes in innovation over time. Additionally, they recommend investigating whether the results hold when different corruption measures are used.

Key Takeaways:

• Corruption can have a positive impact on innovation for domestic firms operating in Portugal.
• Foreign-owned firms do not experience a significant effect from corruption.
• Policymakers should consider the potential impact of anti-corruption efforts on firm performance and innovation.
• Encouraging foreign direct investment may be a strategy to reduce the impact of corruption.

References:

• Krammer, 2019
• Mendoza et al., 2015