Does Corruption really affect the Growth of Entrepreneurship in Zimbabwe?

Abstract

Like in most developing countries, the level of entrepreneurship growth as measured by the number of new firm start-ups has become a central economic issue in Zimbabwe. Necessity and opportunity-driven entrepreneurial activities in the country are being driven by weakening economic growth, poverty, idiosyncratic macro-uncertainties and high levels of unemployment. The country has consistently been listed by the Transparent International Perception of Corruption Index as one of the most corrupt countries in Sub-Saharan Africa outside a war zone. The study examined the nexus between entrepreneurial activities and corruption in Zimbabwe using Ordinary Least Regression equation for the period 1998 to 2016. Our findings suggest that productive entrepreneurial activities in Zimbabwe are significantly being curtailed by regressive tax regimes coupled with enfeebled public institutions. We also demonstrate a positive one way causality running from entrepreneurial activities to corruption and, hence proving the applicability of the greasing hypothesis of corruption in Zimbabwe. The study recommends a number of policy prescriptions that include: reducing levels of taxes on entrepreneurial activities, eliminating red-tape and regulations that add costs on opportunity-driven entrepreneurship, increasing the effectiveness of public institutions especially those that deal with entrepreneurs, introducing robust legislation aimed at reducing public officials' opportunities for rent seeking in entrepreneurial activities that are most prone to corrupt practices. In addition, there is need to monitor bureaucrats and impose severe penalties in order to make corruption payoffs too risky. Our study contributes to the literature on the greasing effect of corruption on entrepreneurial activities in developing countries.

Causes, Dissemination Channels, and Consequences of Corruption in Zimbabwe: Searching for a Kryptonite Solution

“…More corruption is likely as a result of investors attempting to overcome the effects of political instability on future profitability and expected long-term returns. These results agree with the two studies by Muzurura (2017Muzurura ( , 2019 that found political instability led to excessive investments in unproductive activities, such as lobbying politicians and bureaucrats, manipulating the political system, and payments to corrupt officials. A recent upsurge of political instability in the Zimbabwe could be a consequence of corruption and its attendant issues, such as further income inequality and poverty: as corruption increases corruption, the beneficiaries grow wealthier, posing a greater incentive to groups lower down the economic hierarchy to engage in similar, illegal, or violent activities.…”

“…Such an effect is likely to be far more damaging, especially in the case of Zimbabwe, as foreign investment can often bestow immense benefits on developing economies: introducing cutting-edge production technologies, enhancing the development of human capital and management techniques, as well as expediting the rate of technical progress and output growth in the recipient country. These findings agree with those of , Dutta and Sobel (2016), Muzurura (2019), Olken and Pande (2012), and O'Toole and Tarp ( 2014), all who demonstrated that corruption harms both domestic and foreign investment by redirecting resources toward economic activities and sectors that offer less stimulation to the wider economy. Nevertheless, this study differs from those that reported corruption may be a major cause of FDI in resource-rich but poor countries (see Pinto and Zhu, 2016).…”

“…It is difficult to decide which measure to recommend, as it depends on a multiple factors, such as: the condition and quality of the governance system in the public sector, the existence of the required institutions, and the cultural tolerance of corruption. Zimbabwe's governance system was of poor quality (see Muzurura, 2019), which might suggest the following sequence: first, to reduce corruption to a minimum, policymakers should adopt social, political, and economic reforms that enhance regulatory quality, institutional robustness, government efficiency and effectiveness, rule of law, and, as a matter of urgency, macroeconomic stability;…”

Spurring entrepreneurial intensity through social capital and relationship quality

“…Although commendable efforts have been made by the government in this regard, cumbersome bureaucracy, stringent regulations and corruption rentals have slowed down the pace of entrepreneurship growth in Zimbabwe. Muzurura (2019) states that corruption is amongst the impediments to entrepreneurship in Zimbabwe, which tends to have a sanding instead of greasing 'effect on the wheels of entrepreneurship growth'.…”

The corruption and sustainable development nexus in Africa: a contemporary review and analysis

“…Other studies have also arrived at similar conclusions. For Zimbabwe, the empirical analysis of Muzurura (2017) showed that high levels of corruption/rent-seeking are detrimental to economic growth. For Nigeria, the empirical analysis reveals that the relationship between the level of corruption and economic growth is a long-run one, and that corruption’s impact on economic growth in the country is negative (Nwankwo, 2014).…”