Bureaucratic Corruption and Entrepreneurship in Brazil

1
Bureaucratic Corruption and Entrepreneurship in
Brazil

• Bonnie J. Palifka
• Presented at the 150-mile conference
• Edinburg, Texas
• April 22, 2006

2
Outline

• Entrepreneurship
• definition of
• and growth
• factors contributing to
• in Brazil
• Corruption
• definition of
• effects of
• in Brazil

3
Entrepreneurship

• Economic development depends on change.
• North the agent of change is the individual
  entrepreneur responding to the incentives
  embodied in the institutional framework.
• Corruption is an informal institution that
  influences entrepreneurship.

4
Entrepreneurship

• An entrepreneur is an economic agent
• individual
• firm
• institution
• that acts in the allocation of resources
• raw materials
• intermediate goods
• physical, human, and social capital
• either to increase the efficiency of production
  of existing commodities, or to create new
  products.

5
Entrepreneurship

• Types of entrepreneurship
• adapt technology to local conditions
• invent new ways to use local inputs
• imperfect information
• Requires foresight

6
Entrepreneurship and growth
entrepreneurship
higher productivity
economic growth
7
Entrepreneurship

• Factors influencing entrepreneurship
• Psychological
• Social
• Economic

8
Entrepreneurship

• Psychological factors influencing
  entrepreneurship
• innovative personality
• creativity
• risk-taking

9
Entrepreneurship

• Social factors influencing entrepreneurship
• social mobility
• patent protection
• social/cultural legitimacy of entrepreneurial
  activity

vulnerable to corruption
10
Entrepreneurship

• Economic factors influencing entrepreneurship
• demand for industrial and other products
• availability of labor and inputs
• inflation
• taxes
• cost of information
• distribution of income
• access to resources

vulnerable to corruption
11
Entrepreneurship and growth
corruption
entrepreneurship
higher productivity
economic growth
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Entrepreneurship in Brazil

• Baer In 1985, R D expenditures per
  employee was 2.5 times larger in state than in
  private enterprises
• Privatization, therefore, may actually reduce R
  D, a measure of entrepreneurship.

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Corruption

• Definition abuse of ones position for private
  gain.
• Some effects
• absorbs some of the returns to production
• (or robs the state of revenue)
• contributes to the inefficient allocation of
  resources
• increases uncertainty and risk

14
Corruption

• Traditional
• nepotism
• clientelism
• cronyism

• Economic
• bribes
• gifts

15
Corruption in Brazil

• Bezerra, Bases sociais da prática da corrupção no
  Brasil
• part of the social fabric and government
• favors more common than bribes
• apadrinhamento
• interceding on behalf of a friend is acceptable
  self-benefit is corruption
• Effects
• entrepreneurship limited to the connected
• lower incentives to education or effort

16
Source Transparency International, authors
calculations
17
Source Transparency International
18
Source Kroll and Transparencia Brasil
19
Source Kroll and Transparencia Brasil
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Conclusions

• Corruption discourages entrepreneurship.
• Corruption is rampant in Brazil and not
  improving.
• Firms in Brazil list corruption second only to
  taxes as an obstacle to enterprise.
• The most corrupt areas of government bureaucracy
  that deal with businesses in Brazil
• procurement
• technical audits
• police
• tax audits
• Addressing corruption in Brazil is one way to
  encourage entrepreneurship and, therefore,
  economic growth.

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Thank you!

• Your comments are appreciated.