ABSTRACT

Corruption has been identified as a widespread problem in both developed and developing countries. Pervasive corruption at micro level i.e., firm, industry, service sector etc. inhibits economic growth. This study seeks to examine the impact of corruption on firms’ performance in Pakistan. This study has used binary logit model using cross-sectional and short penal data to deal with unobserved heterogeneity. It is based on secondary data drawn from World Enterprise Survey 2013. Unmeasured (unobserved) differences between study individuals or samples that relate to the (seen) variables of interest are referred to as unobserved heterogeneity. The Probit model is a statistical probability model in which the dependent variable has two categories. Bureaucratic Problems, Crime, Foreign Firms, Real Sale and Exports all have statistically significant effect on the bribery and its means Bribe payment % Of firm that give gifts to government officials in linear logit binary regression. Our econometric analysis reveals that bureaucratic quality and corruption negatively impacts the firm’s performance leading to low productivity. In addition, corruption also deters Foreign Direct Investment (FDI) in country. Therefore, it is argued that government’s policies should set the course for minimizing bureaucratic interventions, streamlining regulatory procedures by enabling one window operations, setting clear penalties for bribe and graft, and empowering SMEs for a holistic economic growth and strong industrial sector.