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Abstract
In some cases or some particular contexts, entrepreneurs may be incentivized to prefer unproductive or even destructive activities over productive ones. They will decide not to expand their activities or to not open a business, rather opting to become a rent-seeker and extract rents from other activities, with highly damageable consequences for economic development. Most existing literature on rent-seeking is about the above aspect. In this contribution, we do not consider this aspect of rent-seeking but focus instead on the productive entrepreneur acting within a corrupt environment. In that sense, we do not consider the rent-seeking official or political entrepreneur, but the entrepreneur that, engaged in a productive activity, suffers or benefits from the existence of corrupt officials. A batch of empirical papers provide evidence that corruption deters, or "sands the wheels" of entrepreneurship and economic development. Though, a marginal stream suggests that, in some specific institutional contexts, corruption might be less harmful or even positive, i.e. corruption might "grease the wheels" of the administrative machinery. We review the more recent empirical papers addressing the question. Due to a particular focus on both cross-country and country-level analysis, we highlight the sensitivity of the results to very specific institutional contexts. Moreover, we open the question to entrepreneurship, rather than to the only economic development, and highlight why it is so important, from both an economic analysis and a policy-making viewpoint, to consider them separately.
Keywords: Entrepreneurship, Economic Development, Corruption, Rent-seeking, Regulation, Institutions
Track: Entrepreneurship
Word count: 8.124
1. Introduction
Most literature about rent-seeking considers rent-seeking activities as an occupational choice option for entrepreneurs. Indeed, in some cases or some particular contexts where the risk of losing one's revenues is very high and the threat of sanction very low, entrepreneurs may be incentivized to prefer unproductive or even destructive activities over productive ones (Baumol, 1990; Sanders and Weitzel, 2010; Desai et al., 2010; Dejardin, 2011). They will decide not to expand their activities or to not open a business, rather opting to become a rentseeker and extract rents from other activities, with highly damageable consequences for economic development. In this article, we do not consider this aspect of rent-seeking but focus instead on the productive entrepreneur acting within a corrupt environment. In that sense,...