Does corruption grease or sand the wheels of firm productivity? Evidence of a non-linear relationship from a firm-level analysis in Vietnam

Purpose This analysis examines the relationship between corruption and firm productivity in Vietnam. Design/methodology/approach The authors apply the system generalized method of moments estimation approach on a panel dataset constructed from comprehensive enterprise surveys covering all the sectors over the 2011–2020 period. Findings The results confirm a non-linear relationship between corruption and firm productivity. Where corruption is severe, leaving corruption alone tends to benefit firm productivity because efforts to control corruption are likely to cause greater delays. In less corrupt provinces, corruption appears to harm firm productivity while efforts to control corruption provide significant productivity gains. This U-shaped relationship is confirmed for small firms and those in the private sector sub-samples. Intriguingly, this study reveals that the U-shaped relationship does not apply to micro, medium, large firms, state-owned firms and foreign-invested firms because corruption is found to have no significant impact on productivity among these sub-samples. Changes in regulations after 2014 toward promoting a transparent business environment are shown to foster the positive impact of lowering corruption on firm productivity. Research limitations/implications This study suggests that lowering corruption is beneficial for firm productivity at the micro level. However, where corruption is severe, monitoring corruption alone is likely to cause adverse effects on productivity due to increased bureaucratic delays. Institutional reforms might play an important role in leveraging the effects of lowering corruption on productivity in highly corrupt areas. Originality/value This paper sheds new light on the relationship between corruption and firm productivity in the broad existing literature and especially in the limited number of studies for Vietnam.