Transnational corruption and innovation in transition economies: Evidence from chile

In this paper, we examine how transnational corruption affects host country firms' innovation behaviour and performance in transition economies of Eastern Europe and Central and Western Asia. Using firm-level data from the Business Environment and Enterprise Performance Survey, we show that the involvement of foreign firms in corruption practices reduces the propensity of firms in host countries to invest in research and development and harms their ability to improve their existing products and services. Using a simultaneousequations recursive model and controlling for various innovation determinants, we also show that the reduction in innovation effort ultimately also hurts the host country's long-term ability to successfully bring new products on the market through indirect effects.