A new paper finds no evidence between corruption and investment in Sub-Saharan Africa. The authors clearly appear shocked by the finding, and try hard to put some political spin on it. Excerpt:
Although a number of studies have examined the impact of corruption on aggregate investments, very few have analyzed the effect of corruption on firm-level investments. This paper analyzes the impact of corruption on firm-level investment growth. We find that the effect of corruption varies significantly across regions: corruption has an adverse effect on investment growth for Transition countries, but has no significant effect for Latin America and the Caribbean and Sub-Saharan Africa. Furthermore, among the variables included in the regressions (firm size, firm ownership, trade orientation, industry, GDP growth, inflation and openness to trade) corruption is the most important determinant of investment growth for Transition countries.
Our finding that corruption has no significant effect on investment in Latin America and Sub Saharan Africa does not imply that corruption is less of a concern in these two regions. A plausible explanation is that corruption provides private rents to some firms. However, these private gains to some firms, do not necessarily translate into social gains. In fact, a number of country-level studies have demonstrated that corruption impedes investments and economic growth (e.g., Mauro, 1995; Pellagrini and Gerlach, 2004), reduces public investments in healthcare, education, and infrastructure (e.g., Tanzi and Davoodi, 1997; Mauro, 1998), and results in large social welfare losses (Bose, 2004; Guriev, 2004). Another important point is that our analysis pertains only to firms that are already operating within the country. It is likely that large levels of corruption may prevent many firms from operating in these regions in the first place. However, this loss of potential investments resulting from corruption is not captured by our model. Thus, although corruption does not have a significant effect on investment growth, it is possible, and indeed likely that it might deter the entry of firms. As a consequence, the overall effect of corruption on investment (which includes the loss of potential investments) may be negative.