Effect of corruption on firm level innovation: Evidence from Pakistan

Corruption is a widespread phenomenon in majority of the developing countries. However, literature evidenced both positive and negative impact of corruption in economies at macro level. At the micro level the studies rarely exist explaining this phenomenon. This paper empirically investigates the micro level impact of corruption on firms' innovation. Corruption at the firm level is measured by the "percent of firms expected to give gifts to public officials (to get things done)" as a proxy for corruption, and innovation is measured by "firms that introduce new or significantly improved products or services over the last three years". The results explain that corruption augments firms' innovation, that is, "grease the wheels" exists in the case of Pakistan.