Corruption's asymmetric impacts on firm innovation

- I test if corruption reduces firm innovation in developing countries
- Corruption harms particularly smaller firms' adoption of quality certificates
- The negative effects do not arise for exporters or foreign- and publicly-owned firms
- I find no evidence that corruption reduces firm patenting
- Corruption also has negative effects on firms' investments in machinery

This paper documents the impacts of corruption on smaller- and larger-sized firms' adoption of quality certificates and patents. Using firm-level data for 48 developing and emerging countries, I analyze whether corruption's impacts are stronger on firms operating in industries that use quality certificates and patents more intensively. My results show that corruption reduces the likelihood that firms in these industries obtain quality certificates. Corruption affects particularly smaller firms but has no impacts on exporters or foreign- and publicly-owned firms. While corruption does not reduce patenting, it lowers machinery investments for innovation. By contrast, more reliable business environments foster firms' adoption of quality certificates.