Lobbying, Corruption, and Regulatory Constraints: An Analysis of Eastern European Business Associations

Abstract

This paper examines lobbying and corruption as alternative ways of dealing with regulatory obstacles. I propose a model where firms facing a costly regulation can bribe a rule-enforcing bureaucrat to get around it, lobby the government to reduce its impact, or do both. I then use a firm-level dataset of Eastern European enterprises to examine whether firms use membership in a lobby group as a substitute for the bribe payments they make to rule-enforcing bureaucrats. The results indicate that firms who join lobby groups do not stop paying bribes to bureaucrats, and firms more impacted by corruption are no more likely to join a lobby group than their counterparts. On the other hand joining a lobby group increases the likelihood of a firm bribing legislators and other rule makers, suggesting that lobbying introduces the possibility of state capture by allowing firms access to policy makers that they wouldn't otherwise have. * Eugene Kiselev is currently a PhD student at Brandeis University International Business School.

Externalities in the rent-seeking strategies of lobbying and bribery

“…In these groups of countries lobbying and bribery are not substituted. This is also in accordance with Damania et al (2004), Beckmann and Carsten (2009), Yu and Yu (2011), Kiselev (2013), Gokcekus and Sonan (2017), and Cerqueti, Coppier and Piga (2021) who consider lobbying and bribery complementary strategies. The failure adequately to explain the relationship between lobbying and bribery is due to the focus on the rent-seeking determinants of individual firms and due to the attempt to explain countrywide differences of their prevalence by using the characteristics of firms and ignoring social and cultural factors.…”

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“…(2004),Beckmann and Carsten (2009),Yu and Yu (2011),Kiselev (2013), Gokcekus and Sonan (2017), and Cerqueti, Coppier and Piga (2021) who consider lobbying and bribery complementary strategies.…”