understanding firm-level corruption in vietnam by john rand may 2009 web: email:...
TRANSCRIPT
Understanding Firm-level Corruption in Vietnam
By
John Rand
May 2009
Web: www.econ.ku.dk/randEmail: [email protected]
Introduction
• CIEM/ILSSA/IPSARD/Danida collaboration• Business Sector Program Support (BSPS) –
Component 5: Business Sector Research • 2 Rural household surveys (2006, 2008)• 3 SME surveys (2005, 2007, 2009)
• Previous surveys (1991, 1997, 2002)• SME definition (WB and Vietnamese government
definition)• Micro: up to 10 employees (total assets up to
100,000 US$)• Small: up to 50 employees (total assets up to 3
mill US$)• Medium: up to 300 employees (total assets up to
15 mill US$)
Provinces Covered
Khanh Hoa
Lam Dong
Nghe An
Quang Nam
Phu Tho
Long An
Ha Tay
Ha Noi
Hai Phong
HCMC
Round 5 in the SME tracer survey.
Expanded over time:• 1991: Ha Noi, Hai Phong
and HCMC.• 1997: Ha Tay and Long An
added.• 2002: Phu Tho and Quang
Nam added.• 2005: Nghe An, Khanh Hoa
and Lam Dong added.• 2007: Same as in 2005
Total: 10 provinces – over 2,635 firms available for analysis.
Sampling
Population of firms:• Establishment Census 2002, GSO (2004)• Enterprise Survey/Census various years, GSO (2008)• Problem: Informal firms• Sampling done in three steps:
• In 2005 the number of firms interviewed done proportionally to the number of registered enterprises in each province. Some adjustments.
• In 2007 trace surviving firm and replace exit firms with new enterprises within same province and legal ownership form.
• Result: Formal HH firms under-represented. HH firm segment consists both of informal and formal (business registration license obtained at the district level)
Questionnaire
Consists of 4 parts:
• Main questionnaire (covering both new entries and ”repeat” enterprises)
• Employee questionnaire (covering a sample of the interviewed enterprises)
• Exit questionnaire (track down owner of closed enterprises; making sure that the firm is actually closed down and not just changed location)
• Economic Accounts/Financial records
Questionnaire details and focus
• Identification particulars• General characteristics• Enterprise history• Household characteristics of the owner/manager
• Production characteristics• Sales structure and export• Indirect costs, raw materials and services• Fees, taxes and informal payments• Employment• Investments, assets, liabilities and credit• Networks• Economic environment, constraints and potentials
Number of Interviewed Firms
Interviewed in
2007Interviewed in 2007
(only non-state manufacturing)Interviewed in
2005
Ha Noi 296 279 278
Phu Tho 255 242 265
Ha Tay 394 381 382
Hai Phong 206 194 191
Nghe An 359 349 376
Quang Nam 173 154 154
Khanh Hoa 92 86 95
Lam Dong 89 81 79
HCMC 633 602 665
Long An 138 124 118
Total 2,635 2,492 2,603
Province and Legal Ownership Form (2007)
Household enterprises
Private/sole
Proprietorship
Partnership/ Collective/ Cooperative
Limited liability company
Joint stock
company Total
Ha Noi 119 26 19 102 13 279
Phu Tho 222 4 4 10 2 242
Ha Tay 312 14 10 43 2 381
Hai Phong 92 25 35 33 9 194
Nghe An 288 22 6 28 5 349
Quang Nam 130 7 6 9 2 154
Khanh Hoa 56 14 1 12 3 86
Lam Dong 65 8 0 8 0 81
HCMC 352 50 17 176 7 602
Long An 96 21 1 6 0 124
Sample total 1,732 191 99 427 43 2,492
Focus - Informal Payments
• Bribe – Informal payment going from firms to public officials.• How to ask about bribes/informal payments/corruption?• Use data from 2005 and 2007• Consider only the balanced panel• Thorough data cleaning• Only reasonable and time-consistent financial data• No missing values for relevant variables• Left with 1,661 firm level observations each year• Total of 3,322 observations for analysis. • ICA (2005) – Two-thirds provide informal payments
(However, relatively large incumbent firms considered)• PCI 2008 – Informal payments remain one of the major doing
business obstacles in Vietnam.
Bribe Incidence: Transition Matrix
Year 2007
No Yes Total
Year2005
No892 (85) 156 (15) 1,048
(70) (40) (63)
Yes383 (62) 230 (38) 613
(30) (60) (37)
Total 1,275 (77) 386 (23) 1,661
Note: Number of enterprises percentage in parenthesis)
”Bribe Switchers”
Bribe Purpose Identification
0
5
10
15
20
25
30
Pe
rce
nt
of
firm
s
To getconnectedto publicservices
To getlicenses
and permits
To deal w ithtax and taxcollectors
To gaingovernmentcontracts
To deal w ithcustoms
Otherreasons
Purpose of bribe
Bribe size
Bribe amount Pct of bribes paid
Obs. (Pct. of total revenues) by medium/large firms
To get connected to public services 298 0.30 10
To get licenses and permits 43 0.56 7
To deal with tax and tax collectors 213 0.74 10
To gain government contracts 155 1.09 15
To deal with customs 23 0.33 61
Other reasons 266 0.38 0
Total 998 0.55 13
Increase from 0.5 to 0.6 between 2005 and 2007
What Explains Bribe Incidence
• Exposure / Visibility
• Sunk costs / Bargaining Power
• Willingness / Ability to Pay
• Degree of Interaction with Public Officials
Note: Different policy recommendations on how to reduce informal payments depending on which explanation(s) dominates.
Summary Statistics
Total 2005 2007
Mean SD Mean SD Mean SD
Firm size 14.853 33.236 15.533 32.480 14.173 33.972
Micro 0.689 0.463 0.677 0.468 0.701 0.458
Small 0.256 0.437 0.267 0.442 0.246 0.431
Medium 0.052 0.222 0.055 0.228 0.049 0.215
Large 0.003 0.055 0.002 0.042 0.004 0.065
KL ratio (log) 4.193 1.221 4.065 1.205 4.321 1.224
Profit per employee (log) 2.310 0.866 2.182 0.842 2.437 0.870
State customer 0.144 0.352 0.144 0.352 0.144 0.352
State supplier 0.076 0.264 0.075 0.264 0.076 0.265
Trade 0.058 0.233 0.061 0.240 0.054 0.226
Government assistance 0.269 0.444 0.295 0.456 0.244 0.430
Inspections 0.502 0.500 0.448 0.497 0.556 0.497
Not registered 0.283 0.450 0.261 0.439 0.304 0.460
130 mill. VND
15 mill. VND
Traditional Determinants
OLSOLS
(lagged)OLS(lag 2) FE
Firm size (log employment) 0.169*** 0.170*** 0.121*** 0.138***
“Exposure/Visibility” (20.59) (20.30) (12.34) (5.12)
KL ratio (log) 0.050*** 0.049*** 0.018* 0.027**
“Sunk cost/Bargaining power” (6.44) (6.40) (1.82) (2.08)
Profit/Employee (log) 0.032*** 0.033*** 0.027** 0.019
“Ability to pay” (2.96) (3.15) (1.98) (1.24)Legal structure dummies included No No No No
Sector dummies included No No No No
Province dummies included No No No No
No of observations 3,322 3,322 1,661 3,322
Interaction with Public Officials
Individual Combined FE
Estimates Estimates Estimates
State as customer 0.066*** 0.039 0.038
(2.58) (1.60) (1.21)
State as input supplier 0.165*** 0.133*** 0.106***
(4.86) (4.07) (2.60)
Deal with customs (export/import) -0.102*** -0.077** -0.039
(2.93) (2.29) (0.63)
Received government assistance 0.050** 0.038* 0.052**
(2.51) (1.92) (2.27)
Inspected 0.138*** 0.103*** 0.031
(7.23) (5.31) (1.30)
Not registered -0.201*** -0.169*** -0.086**
(8.70) (7.01) (2.34)
???
Firm Growth and Bribes
1 3 5 6
Firm size (log employment) lagged -0.068*** -0.055** -0.112*** -0.039
(2.78) (2.19) (3.34) (1.04)
Bribes paid (lagged) -0.089**
(1.96)
Bribe change 0.214*** -0.171***
(2.89) (2.60)
Legal structure dummies included Yes Yes Yes Yes
Sector dummies included Yes Yes Yes Yes
Province dummies included Yes Yes Yes Yes
Observations 1661 1661 1048 613
R-squared 0.08 0.08 0.10 0.14
No ”Efficient Grease” – But performance punishment. (Effect only possible to identify with panel data)
Interaction Indicators and Growth
1 2 3
Firm size (log employment) lagged -0.051* -0.089*** -0.179***
(1.93) (2.76) (2.92)
Supplier change -0.081
(From no gov. supplier to supplier) (0.97)
Government assistance change 0.100*
(From no assistance to assistance) (1.68)
Not registered change 0.347***
(From informal to formal) (2.94)
Firms becoming formal experience increased revenue growth!But classical causality problem? (i) Are well performing informal firms more likely to be noticed and forced into formality or (ii) Is formality the reason for the increased performance (due to better access to credit, government assistance etc.)
Conclusion
• Analysis of the determinants of bribe incidence covering 1,661 SMEs in Vietnam over two years.
• Visibility (size, formality, etc.), sunk costs and bargaining position (capital/labour ratio, diversification, etc.), ability to pay (profitability, revenue growth, etc.) and the level of interaction with public officials (inspections, assistance etc.) affect the probability of having to provide a bribe.
• Visibility effects are found to dominate the “bribes-to-hide” effect.
• Several features in the data that support the ability-to-pay hypothesis, and we find evidence suggesting that corrupt public officials “punish” well performing firms.
• Whether this effect is a result of public officials charging an “informal service fee” for delivering beneficial assistance to these well performing firms still remains to be explored.