Corruption, Institutional Barriers and Innovation

Abstract

Innovation and technological advancement are considered key elements for the economic progress of a country. The quality of governance specifies corruption to explain the variation in innovation and growth of a country. There are two different opinions on the role of corruption in innovation; the first opinion is the greasing impact that corruption helps innovation to overcome bureaucratic obstacles and the second opinion that corruption affects innovation by taking resources from a productive sector. The current paper seeks to determine the effect of institutional obstacles and corruption on innovation in Pakistan using the World Bank Enterprise Survey by The World Bank. It was observed that corruption helps to remove bureaucratic obstacles and raises the possibility of product innovation in the country. We find that corruption can ease bureaucratic obstacles and increase the probability of product innovation which provides support for indirect greasing effect of corruption for product innovation. We also find that corruption reduces bureaucratic obstacle for exporting, small and large sized firm and increase their probability of innovation.