Working Paper No. 1323

Do Corrupt Local Governments Inhibit Entrepreneurship? A Contextual Analysis of Start-Ups in Swedish Municipalities

Published: March 9, 2020Pages: 48Keywords: Entrepreneurship; Start-ups; Corruption; Local government; Destructive entrepreneurshipJEL-codes: D73; L26

Do Corrupt Local Governments Inhibit Entrepreneurship? A Contextual Analysis of Start-Ups in Swedish Municipalities Emanuel Wittberg and Gissur Erlingsson


Does corruption affect the incentives for potential entrepreneurs to start businesses? The traditional view holds that entrepreneurship is inhibited. However, a few recent studies indicate the contrary, supporting a ‘grease the wheels’ perspective. In a novel approach to this question, we combine a local government corruption index and individual-level register data on start-ups in a low-corruption setting: Sweden. We disaggregate the analysis to individual entrepreneurs, focus on corruption in local institutions and hypothesize that local corruption deters potential entrepreneurs.

Our findings are twofold. First, rejecting the ‘grease the wheels’ hypothesis, local corruption has a strong local deterring effect on potential entrepreneurs. Second, a minority of entrepreneurs relocate their start-ups from home municipalities to elsewhere. However, contrary to expectations, relocaters could embody ‘non-productive’ or ‘destructive’ entrepreneurship: they migrate from relatively low-corrupt to relatively high-corrupt municipalities. While migrating is uncommon, and the effect is weak, it nonetheless indicates that relocaters are attracted to conditions where rent-seeking opportunities are present.

 


Reference:

Wittberg, Emanuel and Gissur Erlingsson (2020), "Do Corrupt Local Governments Inhibit Entrepreneurship? A Contextual Analysis of Start-Ups in Swedish Municipalities". IFN Working Paper No. 1323. Stockholm: Research Institute of Industrial Economics (IFN).​

Interdisciplinary European Studies

The European Union and the Return of the Nation State

9783030350048_200x_the-european-union-and-the-return-of-the-nation-state.jpg

This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

About the book

Events

Seminars organized by IFN

 

To present ongoing research informal brown-bag seminars are held on Mondays at 11:30 am. This is an opportunity for IFN researchers to test ideas and results.

Academically oriented seminars are most of the time held on Wednesdays at 10 am. At these events researchers from IFN and other institutions present their research.

In addition, IFN organizes seminars open to the public. Topics for these are derived from the IFN research.

Research Institute of Industrial Economics, Grevgatan 34 - 2 fl, Box 55665, SE-102 15 Stockholm, Sweden | Phone: +46-(0)8-665 45 00 | info@ifn.se