Enforcement of environmental protection protocols and compliance amongst Micro Small and Medium Enterprises inZimbabwe: Is institutional credibility effectual in the presence of corruption tendencies?

Abstract

There are growing concerns surrounding the environmental degradation that is caused by the operations of the expanding Micro, Small, and Medium Enterprises (MSMEs) engaged in manufacturing activities in developing countries. This is more so given the weak regulatory environments and low levels of institutional trust amongst entrepreneurs in a context where the potential to bribe environmental enforcement agents is rife as in a sizeable number of developing countries. We investigate the efficacy of regulatory inspections in inducing compliance with environmental protection standards and the heterogeneity that is brought about by institutional trust and corruption based on a nationally representative survey of MSMEs engaged in manufacturing activities in Zimbabwe. We deal with the problem of the endogeneity of regulatory inspections by using the doubly robust Inverse Probability Weighted Regression Adjusting method. We offer four major findings: First, regulatory inspections induce MSMEs’ compliance with environmental protection standards. Second, the impact of regulatory inspections on compliance with environmental protection standards is higher when MSMEs’ owners trust the regulatory institutions than when they do not. Third, regardless of the level of trust in institutions by entrepreneurs, the potential for entrepreneurs to bribe the regulatory agency officers subdues the potency of regulatory inspections in inducing compliance with environmental protection standards. Finally, in the absence of trust in the institutions by entrepreneurs, regulatory inspections on environmental protection standards have no statistically significant effect on compliance for corrupt entrepreneurs. JEL: D22; K32; L51; Q56; Q58