48 Table 4: Impacts of access money on the firm’s innovative activities ..... The study found that tax administration corruption in Vietnam positively influences innovation inputs and ou
INTRODUCTION
Research background
Human beings today enjoy healthier and longer lives, benefiting from comforts unimaginable to previous generations This remarkable transformation is largely attributed to scientific and technological advancements, which will remain crucial for future progress (Johnson & Acemoglu, 2023) In our digital age, there is a growing interest in exploring the factors that promote or impede innovation (Thurnherr, 2020).
Corruption significantly influences a country's innovation trajectory, with two main theories positing its effects The first theory views corruption as a "grease" that facilitates company growth and supports economic development, while the second sees it as "sand," creating obstacles that hinder economic activity The relationship between corruption and innovation is complex and context-dependent, with varying impacts on economic performance based on the mechanisms through which corruption operates.
Corruption can negatively impact economic outcomes by hindering innovation, competitiveness, and productivity, as noted by Mo (2001) and Lambsdorff (2003) Conversely, it can also function as "speed money," helping companies navigate bureaucratic obstacles and facilitating market entry (Cíeslik & Goczek, 2015) A study by Ang (2020) suggests that corruption may even promote economic growth by encouraging investment and technology transfer While corruption is generally undesirable, Ang (2020) emphasizes that not all corruption types are equally detrimental, highlighting "access money," which involves substantial rewards from wealthy capitalists to influential officials for exclusive privileges This form of corruption not only alleviates administrative burdens but also creates business opportunities and profit through government contracts secured via political networks However, existing literature often overemphasizes speed money, treating all corruption as a tax rather than recognizing its potential as an investment for future profit.
This study aims to fill a theoretical gap by exploring the impact of access money in Vietnam The author contends that access money is crucial for securing market demand and ensuring a company's monopolistic advantage.
Corruption is a complex issue with social, economic, and political implications, varying significantly across countries (Thurnherr, 2020) The United Nations Office on Drugs and Crime (UNODC) highlights the challenges in estimating corruption due to its hidden nature, making direct measurement difficult (UNODC, 2018) In the last two decades, corruption has gained attention as a critical area of study (Thurnherr, 2020) The 2030 Agenda for Sustainable Development, adopted by the United Nations General Assembly on September 25, 2015, identifies corruption as a major obstacle to achieving sustainable development (UNDP) Goal 16 of this Agenda focuses on building inclusive, just, and peaceful societies that ensure equitable access to justice, uphold human rights, and maintain a strong rule of law, all of which require transparent, efficient, and accountable institutions free from corruption The General Assembly emphasized the need for indicators related to Sustainable Development Goals to be based on domestic data, urging countries to integrate these measures into their official national statistics (UNODC, 2018).
During this period, numerous methodologies for assessing corruption have arisen, among them are two popular indices: The Corruption Perceptions Index (CPI) and the
The Global Corruption Index (GCI), published annually by Transparency International, provides insights into the perceived levels of corruption in 180 countries and territories, focusing on the public sector This index compiles data from 13 reputable sources, including the World Bank and the World Economic Forum, reflecting the views of experts and business leaders Higher scores on the index indicate greater transparency and lower corruption levels, highlighting the importance of accountability in governance.
The global risk assessment encompasses 196 countries and territories, utilizing 42 internationally recognized variables It features two sub-indexes that deliver both an overarching view of global risks and a detailed analysis Scores for each country range from 0 to 100, where 0 indicates minimal risk and 100 signifies maximum risk (Risk-indexes.com).
Recent research has focused on assessing the effects of corruption on national innovation, highlighting significant findings from various studies (Krastanova, 2014; Trinh, 2019; Xu & Yano, 2017) A notable study by Thurnherr further contributes to this growing body of literature.
A 2020 analysis of corruption levels and innovative capability across 140 countries reveals a significant correlation, indicating that nations with high corruption levels are less likely to benefit from innovation Although this correlation does not establish causation, it highlights the detrimental impact of corruption on innovation capacity (Thurnherr, 2020) Research by Wen et al (2023) on 29 OECD countries from 1996 to 2013 demonstrates that reducing corruption can significantly increase patent applications, a key indicator of domestic innovative activity Furthermore, a study by Pirtea, Sipos, and Ionescu (2019) examining 110 emerging countries from 2002 to 2014 confirms that corruption negatively affects corporate innovation processes, creating an unstable environment that hampers innovation efforts.
Nearly 40 years after Doi Moi, Vietnam has successfully transformed from a war- ravaged, centrally planned economy to a vibrant and open market economy (World Bank, 2016) The country has been praised by the international community as a remarkable poverty reduction story and is on its road to becoming a high-middle-income country Vietnam has successfully maintained an impressive annual growth rate of 7% since 1986, placing it as one of the fastest-growing economies in the region (Bai, Jayachandran, Malesky & Olken, 2019) The country has set an ambitious goal of becoming a high-income country by 2045 Despite noticeable economic outcomes over the past four decades, the concerns over whether the country could sustain its success and meet the expectations for the future remain hotly debated (Cirera, Comin, Lee & Neto, 2021) The key to sustainable growth relies on the innovative capability and the speed of increasing labor productivity (World Bank, 2016)
The adoption of technology in Vietnam's manufacturing and service sectors remains low, with manufacturing firms experiencing the largest technological gaps compared to agriculture and services According to the World Bank, Vietnam's technology level is rated at only 2.5 on a scale of 1 to 5, significantly lower than advanced economies like South Korea, which averages 4 Furthermore, Vietnam's investment in research and development (R&D) is limited, with only 0.5% of its GDP allocated to R&D in 2021, compared to 0.8% in Thailand and 4.5% in South Korea.
Figure 1: R&D expenditure relative to GDP per capita, 2020 (Source: Cirera et al., 2021)
Figure 2: Patents granted by inventor origin in Vietnam, 2017–2020 (Source: World Bank, 2023)
Vietnam's patent landscape reveals a concerning disparity, with the number of inventions significantly trailing behind other Southeast Asian nations like Thailand and Malaysia Alarmingly, over 90% of patents are held by foreign investors, leaving domestic firms with only a handful of patents This minimal contribution from the local private sector heightens the risk of the Vietnamese economy becoming overly reliant on foreign companies.
Meanwhile, Vietnam will soon experience mounting burdens from an aging population that will likely hinder the country’s ambition to attain high-income status by
By 2035, Vietnam is projected to become an aged society, making it one of the fastest-aging nations globally, according to a 2021 report by JICA and the World Bank In 2023, Vietnam's fertility rate fell to 1.96, below the replacement rate, and is expected to decline further This trend raises concerns about a potential shortage of working-age individuals, jeopardizing the country's economic growth and diminishing its ability to leverage its previously abundant and inexpensive labor force Consequently, Vietnam risks deviating from its high-income aspirations and may gradually succumb to the middle-income trap.
Upgrading labor quality and boosting innovative capacity are urgent tasks for the Vietnamese government to prepare for future unwanted demography (Glinskaya et al.,
The significant role of Vietnamese domestic firms in enhancing the nation's innovative capacity requires urgent analysis A comprehensive examination will yield valuable scientific insights that can inform policy-making and aid in the formulation of sustainable development strategies.
As of now, domestic private enterprises play a crucial role in Vietnam's economy, contributing 57% of the nation's GDP and employing nearly 60% of the workforce (Tran, 2022) Since the 1986 reforms, the private sector has been recognized as a vital engine for economic growth (Bai et al., 2019) The General Statistics Office of Vietnam reports that Small and Medium-sized Enterprises (SMEs) make up 97% of all companies in the country These SMEs are significant contributors to the economy, generating approximately 40% of GDP, 33% of industrial output, and 30% of export value, while also employing around 51% of the labor force (GSO).
Overall goal of the study
This study aims to empirically examine and evaluate the impacts of access money (one type of corruption) on firms’ innovative activities, specifically considering the case of Vietnamese SMEs.
Contribution of the research
This study aims to provide empirical evidence on the impact of corruption, specifically access money, on innovation activities in Vietnam, marking the first investigation into this relationship Unlike previous research that focused on general corruption and petty theft, this analysis highlights the unique role of access money, a prevalent form of corruption, in fostering innovation within firms It posits that access money functions as an investment for companies, enabling them to secure future profits rather than merely serving as a fee imposed by public officials Consequently, when firms anticipate and secure profitable opportunities, they are more likely to invest in technology and enhance their production capacity.
This article utilizes empirical evidence from Vietnamese SMEs alongside qualitative analysis of a case study in the pharmaceutical sector to explore the dynamics of financial access The author aims to shed light on how access to capital influences operations and its relationship with corruption, ultimately enriching the theoretical discourse on the interplay between corruption and innovation.
Research objectives
The research has two objectives:
- The first objective is to investigate the current state of innovation among SMEs in Vietnam
- The second objective seeks to analyze the impacts of one type of corruption (access money) on innovative activities (measured by the innovation inputs and innovation outputs) in Vietnam.
Research questions
The study aims to answer two questions below:
1) What are the current innovation practices and trends among SMEs in Vietnam?
2) How does corruption, particularly in the form of access money, affect the innovation inputs and outputs of SMEs in Vietnam from 2011 to 2015?
Scope of the study
The study examines the effects of access to funding on innovative activities among over 2,500 small and medium-sized enterprises (SMEs) in 10 provinces of Vietnam from 2011 to 2015 Vietnam was chosen for this research due to its status as a low-middle-income country, where most manufacturing jobs involve assembly work, resulting in low value within the global value chain (United Nations Industrial Development Organization, 2020) Enhancing innovative activities in local businesses is crucial for sustaining the country's competitive advantages and addressing the challenges posed by a declining birthrate and workforce.
Vietnam, like many emerging economies, faces significant challenges with rampant corruption, which has persisted as a socio-political issue for decades, impacting economic development and eroding public trust (Giang, 2023) Research indicates that higher economic growth is often associated with lower corruption levels (Treisman, 2000; Bai et al., 2013; Bai et al., 2019), and Vietnam has seen improvements in its Transparency International rankings, moving from 116th to 104th between 2010 and 2020 Despite this progress, corruption remains widespread, with bribery continuing to burden businesses (Giang, 2023).
2022 is 77 out of 180 countries, with 42 out of 100 points slightly below the average score of the Asia Pacific region (45 points)
Research on the impact of corruption on innovation is limited, particularly in the context of Vietnam Most existing literature primarily examines the link between corruption and economic growth, revealing context-specific findings that create a complex picture Tailored studies for emerging economies like Vietnam are essential for countries grappling with corruption while striving to adopt advanced technologies As Vietnam progresses from a modest background to addressing poverty and now facing the middle-income trap, it serves as a prime example of a developing nation aiming for prosperity.
LITERATURE REVIEW AND THE THEORETICAL FRAMEWORK
Definition of SMEs
Small and Medium Enterprises (SMEs) play a vital role in economies, particularly in emerging markets, where they represent around 90% of businesses and are key contributors to job creation and economic development Globally, SMEs account for over 50% of total employment, highlighting their significance in fostering economic growth (World Bank, 2019).
The World Bank (2003) highlights that the definition of Small and Medium Enterprises (SMEs) varies across countries and reporting sources, with common metrics including employee count, total net assets, sales, and investment levels (Ayyagari & Beck, 2003) Employment is the primary criterion for defining SMEs, though there are differences in upper and lower size limits It is crucial to recognize that SMEs are formal enterprises, distinct from informal ones The author discusses two key definitions: the World Bank classifies micro-businesses as having fewer than ten employees, while small firms are defined as employing between ten and a specified upper limit.
49 workers, and medium-sized companies have staff ranging from 50 to 300 individuals (Ayyagari & Beck, 2003)
Decree No 39/2018/ND-CP by the Vietnamese government establishes the classification criteria for small and medium-sized enterprises It defines micro-enterprises in agriculture, forestry, fisheries, industry, and construction as those with an average annual employee count of 10 or fewer, and an annual revenue not exceeding 3 billion VND In contrast, micro-enterprises in commerce and services are classified with a higher revenue cap of 10 billion VND.
Small enterprises in agriculture, forestry, fisheries, industry, and construction typically have fewer than 100 employees participating in social insurance and generate annual revenues of up to 50 billion VND In contrast, small businesses in the commerce and services sector usually employ no more than 50 people in social insurance and have total annual revenues not exceeding 100 billion VND.
Medium-sized enterprises in agriculture, forestry, fisheries, industry, and construction are defined as having an average annual employee participation in social insurance of up to 200 individuals and total annual revenue not exceeding 200 billion VND In contrast, medium-sized enterprises in commerce and services are characterized by an average annual employee count of no more than 100 individuals participating in social insurance, with total annual revenue capped at 300 billion VND.
This study employs a secondary data set classifying firm size based on suggestions from the World Bank Small and medium-sized companies are firms that have fewer than 300 employees.
Corruption
Determining corrupt actions can be challenging, as every society has customs surrounding gift-giving and favors In ancient Greece, the term "dorodokein" referred to bribery, meaning "receiving gifts" without moral justification (Taylor, 2001) Carlà-Uhink notes that the term "corruption" remains ambiguous, despite its clear Latin roots.
Corruption is often associated with "destruction, degradation, and collapse" (Horn-Conrad, 2022), yet not all actions deemed corrupt necessarily breach existing laws It can arise from a variety of motives, including economic, political, ethical, or legal factors This complexity makes the evaluation and prevention of corruption particularly difficult This study adopts Bardhan’s 1997 definition, which characterizes corruption as the misuse of power by public officials for personal gain (Bardhan, 1997).
Corruption has been a persistent issue throughout human history, appearing in various forms across all levels of bureaucracy and political development (Agrawal, 2007; Kuru, 2022; Ortiz-Ospina & Roser, 2024) It remains a significant obstacle within political institutions, as evidenced by both historical records and current empirical data, underscoring its prevalence and enduring nature (Braibanti, 1962; Kuru, 2022; Ortiz-Ospina & Roser, 2024).
Corruption has been a persistent issue throughout history, with its roots traceable to some of the earliest civilizations In ancient Egypt, corruption emerged within the judicial system as early as 3100 BC during the first dynasty Similarly, ancient Greece, particularly Athens, faced significant corruption challenges from the fifth century onward, embedding it deeply into the political fabric of democracy The severity of corruption in Athens prompted authorities to implement stringent laws aimed at preventing embezzlement and bribery among officials Those found guilty faced severe consequences, including the loss of citizenship rights and exclusion from state roles, which were among the harshest penalties in Athenian society.
Throughout the history of Vietnamese feudal dynasties, laws addressing the punishment of officials for embezzlement and corruption were prominent, notably exemplified by the Royal Penal Code of the Le Dynasty This code consists of 722 articles, with 40 specifically targeting anti-corruption measures, highlighting the severity of this crime due to its detrimental impact on the king's reputation (Le, 2022) The penalties outlined in this law are particularly severe, ranging from removal from office to the death penalty for those found guilty of corruption.
Since the early 20th century, the integration and expansion of the global economy have led to a significant increase in the scale and sophistication of corruption The complex and secretive nature of corrupt activities poses challenges for accurately measuring corruption worldwide A key tool for assessing corruption is the Corruption Perception Index (CPI) developed by Transparency International, which, since 1995, has ranked the corruption levels in 180 countries and territories based on surveys of experts and business leaders regarding public sector corruption, using a scale from 0 to 100.
100 corresponding to the level "highly corrupt" to "very clean" (Transparency.org,
In its 2023 report, Transparency International highlights a disturbing rise in global corruption, with 80% of the world's population residing in countries marked by serious corruption issues The report reveals a significant disparity in corruption levels between democratic and authoritarian nations, noting that Nordic countries rank as the least corrupt In contrast, authoritarian regimes, particularly those with lower incomes and weak institutions, experience heightened corruption, often exacerbated by ongoing conflicts.
In the 2023 Corruption Perceptions Index (CPI) released by Transparency International, Denmark topped the list with 90 points, followed by Finland and New Zealand at 87 and 85 points, respectively Singapore stands out as the only Southeast Asian nation in the top 10, earning 83 points Conversely, the lowest performers include several African nations, with Somalia scoring just 11 points, and Syria, Venezuela, and South Sudan each earning 13 points Regionally, Western Europe and the European Union boast the highest average score of 66 points, while Asia-Pacific scores 45 points, Eastern Europe and Central Asia 35 points, and Sub-Saharan Africa ranks lowest at 33 points (Transparency.org, 2024).
Corruption's cost extends beyond monetary value, significantly undermining social contracts and political institutions Quantitative assessments, while limited due to the sensitive nature of corruption, reveal its severe economic impact, with the International Monetary Fund estimating an annual loss of $4.5 trillion, or about 5% of global GDP Less wealthy economies face greater losses, with corruption consuming approximately 30% of their national budgets, compared to 23% in wealthier nations Geographically, Sub-Saharan Africa endures the highest financial damages, with corruption affecting nearly 27.8% of government expenditures, while North America experiences the lowest impact at 18.9%.
Differences in institutions, natural resources, and armed conflicts contribute to the prevalence of corruption and dishonesty in developing countries Factors such as wealth disparity, the perception of public service as a means to prosperity, inadequate regulatory systems, and a weak sense of nationalism exacerbate these issues.
Corruption can be classified in various ways by different scholars Nye (1967) identifies three types based on the purpose of corrupt actions: bribery, nepotism, and misappropriation of public resources In contrast, Ang (2020) categorizes corruption according to the rank of officials involved and the scale of the corrupt acts, distinguishing four types: petty theft, grand theft, speed money, and access money Petty theft involves small-scale misappropriation by street-level officials, while grand theft pertains to significant misuse of public funds by politicians Speed money refers to small bribes to expedite processes, whereas access money includes rewards given to high-ranking officials to secure profitable contracts, encompassing both legal activities like lobbying and illegal actions such as kickbacks This study utilizes Ang’s framework to analyze corruption.
Measuring corruption is challenging due to its clandestine nature, making accurate data collection difficult, as victims often fear retaliation and are reluctant to report incidents This results in less frequent reporting of corruption compared to other crimes Early efforts in corruption measurement relied on indirect approaches due to the complexity of gathering direct evidence, favoring assessment methods that do not depend on direct observation Key indirect methods used for evaluating corruption both domestically and internationally include various innovative assessment techniques.
This method gathers evaluations from a panel of experts on corruption trends and behaviors in specific countries The core idea is to obtain concise insights from knowledgeable individuals in the field Expert assessments have been utilized in evaluating integrity, governance, and competitiveness related to corruption (UNODC, 2018).
Composite indices aggregate diverse statistical data into a singular indicator, effectively condensing complex concepts and unifying information from various sources In recent decades, many composite indices related to corruption have been developed, primarily relying on expert assessments and perception surveys rather than solely on evidence-based metrics These indices utilize proxy indicators, providing a risk assessment of corruption rather than a direct measurement of its actual prevalence.
Indirect assessment methods have significant limitations regarding their validity and applicability, as highlighted by Kiener-Manu (2018) These methods depend heavily on expert evaluations and composite indicators that are influenced by personal assumptions, such as variable selection and source choice Furthermore, they do not offer disaggregated data or detailed insights into corruption, which are essential for informed policymaking (UNODC, 2018) In contrast, direct measurement approaches may provide more reliable data for addressing these issues.
Innovation
Innovation refers to the process of generating new ideas or enhancing existing ones, embodying both creativity and novelty Although it is typically regarded favorably in Western culture, innovation carries inherent advantages and disadvantages Throughout history, economists, political philosophers, and artists have critically examined the costs and benefits associated with innovation (Sandefur, 2018).
Innovation has the potential to revolutionize outdated systems and reshape societies by transforming new ideas into tangible realities This process not only creates wealth and power but can also lead to displacement and chaos The concept of "creative destruction," introduced by Austrian economist Joseph Schumpeter, encapsulates this dynamic interplay between innovation and societal change.
Innovation is a key driver of a free-market economy, as highlighted by Schumpeter (2013), who describes it as advancements in manufacturing processes that boost productivity This ongoing cycle of industrial upgrading disrupts existing economic structures while creating new ones, prompting emerging sectors to draw resources from traditional industries As a result, established businesses encounter competition from new entrants, and advancing technologies can render existing skills and machinery obsolete (Acemoglu & Robinson).
2012) "Creative destruction," as Schumpeter (2013) suggests, frequently leads to the obsolescence of longstanding arrangements, thereby freeing resources for alternative utilization and consequently promoting greater economic efficiency
Modern economic theories emphasize that innovation is the key driver of sustainable economic growth and productivity improvement Since the emergence of endogenous growth theory, it has become widely accepted that technological progress is the primary force propelling the economy over the long term Consequently, fostering innovation and establishing an ecosystem that supports innovative activities have become crucial priorities in contemporary economic policy.
This study adheres to the Oslo Manual's (2005) definition of innovation, which describes it as the introduction of a new or significantly improved product, process, marketing strategy, or organizational method within business practices.
Innovation is crucial for a firm's performance, as highlighted by Coad & Rao (2008) and Audretsch et al (2017) The Oslo Manual (OECD-Eurostat, 2005) identifies four main types of innovation: product, process, marketing, and organizational Product innovation involves launching a new or significantly improved product, while process innovation focuses on enhancing manufacturing methods Additionally, marketing innovation encompasses new marketing strategies, including changes in product packaging.
The last type of innovation is organizational innovation referring to the execution of a new business practice
Firm innovation is influenced by both internal and external factors Internal factors include the firm's innovative capacity, the quality of management, and investment in research and development (R&D), as highlighted by Hungund & Mani (2019) and Cirera et al (2021) On the other hand, external factors, such as the quality of institutions and a supportive business environment, are critical areas of focus in various studies (de Waldemar, 2012; Anh et al., 2016; Paunov, 2016; Wen et al., 2020).
This section presents the innovation surveys designed by the Oslo Manual in 1992 as a major guideline for measuring innovation (Gerstein, Plewes & Brown, 2004)
Innovation surveys require firms to detail their innovative activities, focusing on inputs, outputs, and organizational behaviors Inputs assessed include not only research and development (R&D) expenditures but also investments in intangible assets such as training, patent and license acquisitions, product design, trial production, and market analysis.
Data collection on innovative products is essential for enterprises to assess significant changes and new offerings, which may be novel to the company, market, or globally Key indicators help evaluate the nature of innovative activities, including the continuity of R&D and collaboration with other entities Additional data encompasses knowledge sources, motivations for innovation, perceived barriers, and the effectiveness of mechanisms for capturing innovation benefits Initially, innovation surveys began in several European nations but have expanded globally, with participation from countries such as Australia, Canada, all EU member states, Japan, Korea, Mexico, New Zealand, Norway, Switzerland, Turkey, Russia, South Africa, and many Latin American nations.
This study measures innovation using data aligned with the Oslo Manual (1992), gathered through direct surveys of business owners regarding innovative activities undertaken in the past two years Consistent with prior research (Anh et al., 2016; Doan et al., 2021; Pham & Matsunaga, 2019; Tuyến & Hưởng, 2018), innovative activities are classified into innovation input and innovation output Innovation input includes investments in research and development (R&D), new equipment and machinery, and patents, while innovation output refers to the introduction of new product groups, enhancements to existing products, and the implementation of new production processes or technologies Companies receive a value of 1 for innovation input if they invested in any of these areas in the last two years; otherwise, they receive a value of 0 Similarly, innovation output is represented as a dummy variable, with a value of 1 for companies that introduced new products or technology or made improvements, and 0 if no such actions were taken.
2.3.4 Factors affecting the firm’s innovation a) Firm’s characteristics
Research by Sứrensen and Stuart (2000) indicates that a company's age significantly influences its innovation processes through two opposing mechanisms Older firms tend to excel in innovation, as reflected in their higher patent output, due to their accumulated organizational experience and knowledge This extensive industry presence enables them to build valuable expertise and capabilities, enhancing their innovation potential (Cohen & Levinthal, 1990) Additionally, these firms often develop robust networks of collaborators and stakeholders over time, providing access to essential resources and opportunities that facilitate innovation (Coad, Segarra & Teruel, 2016) Furthermore, older companies typically possess a more substantial resource base, including financial, human, and physical assets, which support research and development, experimentation, and the implementation of innovative ideas (Schumpeter, 1934).
Older firms often struggle to adapt to new market trends and technologies due to inertia and resistance to change, leading to obsolescence (Sørensen & Stuart, 2000) As companies age, they tend to become more risk-averse, favoring established strategies over innovative ideas This reluctance to embrace risk can stifle experimentation, creativity, and the pursuit of new opportunities for innovation (Radas & Božić, 2009) The age of a firm is typically assessed by the number of years it has been in operation.
The impact of firm size on innovation can be both positive and negative Larger firms, equipped with extensive resources such as production capacity, financial support, and strong marketing infrastructure, are generally more inclined to invest in research and development, thereby fostering innovation In contrast, small and medium-sized enterprises (SMEs) face challenges in innovating due to limited internal expertise and resources, which hampers their ability to absorb knowledge and technology Nevertheless, small firms can capitalize on their agility and focused innovation efforts The relationship between firm size and innovation is influenced by industry characteristics, market structure, and individual firm strategies Firm size is typically measured by analyzing the total assets of a company from the previous year.
The impact of exports on innovation is crucial, as the competitive nature of international markets drives exporting companies to innovate for survival By entering global markets, firms gain access to knowledge, expertise, and technologies that may be absent domestically, leading to increased productivity and innovation, a phenomenon known as the 'learning-by-exporting' effect In evaluating exports, a binary variable is used, assigning a value of 1 to companies engaged in direct or indirect exporting during the year, while a value of 0 indicates no involvement in such activities.
Paul Romer, a leading expert in economic growth, emphasizes that innovation stems from a combination of societal structures that foster growth and the generation of new ideas Unlike physical goods, ideas can be shared widely, significantly speeding up technological advancement While capital, social institutions, and technology are crucial, they must be accompanied by the ability and willingness to think creatively The concept of "creative destruction," introduced by Schumpeter, highlights the ongoing cycle of business creation and failure, driven by entrepreneurs who turn innovative ideas into marketable products and services These entrepreneurs are distinguished by their skills and their eagerness to pursue new economic opportunities Consequently, in fostering innovation within a firm, the importance of management skills and entrepreneurship is on par with other internal factors, as managers play a vital role in directing operations and investments.
Review of theoretical models
Research on the relationship between corruption and innovation remains limited and yields inconclusive results However, a substantial body of literature focuses on the connection between corruption, economic growth, and firm performance (Ades & Tella, 1997; Aidt, 2003; Fisman & Svensson, 2007) These studies reveal a complex and asymmetrical relationship, indicating that the effects of corruption differ across firms of varying sizes and in diverse economic contexts due to distinct social and economic conditions The influences of corruption on both the overall economy and individual firms are often categorized into "helping hand" and other effects.
“grabbing hand” in which institutional quality is the decisive factor
2.4.1 “Helping hand theory” or “Grease the wheels theory”
The "helping hand theory" suggests that corruption can play a role in enhancing economic efficiency by streamlining processes and reducing bureaucratic hurdles In this context, corruption is viewed as a form of "speed money" that accelerates transactions and alleviates the delays caused by cumbersome administrative practices.
This school of thought refers to the idea that corruption helps firms to survive and promote their efficiency in a low-quality institutional environment (Bjorvatn & Sứreide,
Corruption can act as a "lubricant" for businesses, helping them navigate obstacles posed by weak judicial systems and bureaucratic inefficiencies (Huntington, 1968; Méon and Weill, 2010) In environments with poorly functioning institutions, companies encounter burdensome procedures and obstructive officials, which can deplete resources and deter future investments To counteract the instability and unpredictability of the business landscape, bribery and political connections may serve as a form of "insurance," allowing entrepreneurs to safeguard their operations against sudden changes in laws and policies that could disrupt their business plans (Murphy et al., 1993).
Additionally, bribery appears to counter administrative ineffectiveness, excessive red tape, and inflexible regulations, which inhibit productive, creative initiatives (Golla,
Samuel P Huntington (1968) argues that a rigid, over-centralized bureaucracy, whether honest or dishonest, can be detrimental to society Corruption within such a system may actually expedite administrative processes and mitigate the delays typically associated with public officials As corrupt officials strive to fulfill the demands of businesses from which they have accepted bribes, this dynamic can paradoxically enhance economic growth by increasing a firm's efficiency and productivity (Leys, 1965; Lui, 1985; Méndez & Sepulveda).
In a corrupt business environment, companies may need to engage in bribery to secure state contracts, leading to competition based on the highest offers rather than merit This situation implies that only those firms with the lowest operational costs can sustain the hefty bribes required to win contracts, ultimately skewing fair competition and favoring cost management over ethical practices.
The "East Asian paradox," as described by Wedeman (2003), highlights the remarkable economic growth in countries like China, Korea, and Thailand, despite the prevalence of widespread corruption In these nations, organized corruption has become a systemic norm, creating an environment where corrupt practices are culturally accepted This normalization of corruption reduces unpredictability, allowing for increased investment, as bribery is perceived merely as a cost of doing business (Anh, Minh & Tran-Nam, 2016).
2.4.2 “Grabbing hand theory” or “Sand the wheels theory”
The "grabbing hand" or "sand the wheels" theory opposes the concept of a "helping hand," suggesting that corruption increases the costs of establishing and running businesses This rise in expenses discourages potential investors and ultimately hinders economic growth.
Bribery not only hinders the acceleration of administrative procedures but also fosters a culture of corruption among government officials This allows authorities to exploit opportunities for personal gain, transforming their obligation to provide public services into a privilege granted to businesses.
Corruption significantly undermines corporate culture and distorts resource allocation, hindering investment in research and innovation It increases the uncertainty and transaction costs associated with intellectual property rights, as innovators often must engage with corrupt officials during their invention process Additionally, corruption inflates the costs of necessary licenses and approvals, with instances of corrupt officials demanding bribes for patents or quality certifications This environment further allows violators to evade consequences if corrupt judges accept bribes, exacerbating the challenges faced by genuine innovators.
Corruption by authorities significantly diminishes the anticipated profits from innovative ventures, making it difficult to market potentially profitable products effectively (Xu & Yano, 2017) The exploitative nature of such corruption complicates and increases the costs for corporations attempting to implement anti-corruption strategies (Luo, 2005).
In this way, corruption discourages enterprises from investing in and developing new production technologies, indirectly delaying the development of the economy
Bribery can significantly hinder the innovative potential of smaller businesses, as they face greater credit constraints compared to larger companies With their higher sales revenue, larger firms are able to allocate more resources towards bribery, which can stifle competition and creativity in the market.
In 2005, it was noted that large corporations are often favored by politicians prone to bribery, as they can yield greater profits from corrupt practices compared to smaller firms These officials tend to engage in negotiations with big businesses, fostering long-term relationships characterized by frequent interactions, rather than collaborating with smaller companies.
The relationship between corruption and firm performance, especially regarding innovation, is complex and varies significantly based on context, influenced by which factors are more prominent.
Review of empirical evidence
Recent decades have witnessed a notable increase in empirical research examining the relationship between corruption and innovation, driven in part by the availability of more data This body of work includes both studies focused on specific countries and cross-country analyses.
Research on individual countries often focuses on developing or transitioning economies, with the US being a notable exception Cross-country studies predominantly examine developing nations, particularly in Africa and Eastern Europe, while some research also includes OECD members and a mix of both developing and developed economies.
The majority of studies that analyze national-level aggregate data suggest that corruption hurts innovation For instance, Griffiths and Kickul (2008) classified several
A study examining the innovation index of EU countries, Japan, and the US revealed a positive correlation between higher innovation levels and lower perceptions of corruption Supporting this finding, Golla (2010) highlighted a connection between the Corruption Perceptions Index (CPI) and the Summary Innovation Index (SII) in her research on formerly centralized EU economies.
Natário, Couto, Tiago, and Braga (2010) conducted a study to assess the hypothesis that institutional efficiency enhances a country's innovative capability, utilizing data from the European Innovation Scoreboard.
A study conducted in 2008 revealed a strong correlation between corruption and innovation, indicating that nations with high innovative capacity tend to have strict corruption controls Conversely, countries exhibiting low potential for innovation are often characterized by weaker measures against corruption.
Anokhin and Schulze (2009) used panel data spanning 64 countries from 1996 to
A study conducted in 2002 examined the link between corruption control and levels of innovation The findings revealed no significant linear impact of corruption control on innovation; however, a positive squared-term effect was identified, indicating a convex relationship between corruption control and innovative capabilities.
Research indicates that corruption can both hinder and promote innovation at the firm level A study by de Waldemar (2012) highlights the inhibiting effect of corruption on innovation, drawing on data from the 2005 World Bank Enterprise Survey of Indian firms, which included 2,280 enterprises across 17 states The study focused on product innovation, defined as the introduction of new products, and examined the average bribery practices across various sectors and states Utilizing probit estimation, the findings consistently demonstrated a negative and statistically significant relationship between bribery and product innovation across all analyzed specifications.
A study by Mahagaonkar (2009) examined the impact of corruption on innovative activities in African countries characterized by weak governance and complex regulations Utilizing data from the 2004 World Bank Enterprise Survey, the research revealed that while corruption hinders product and organizational innovation, it paradoxically boosts marketing innovation Interestingly, process innovation appears to be unaffected by corruption, indicating a dual influence where corruption can both inhibit and facilitate different types of innovation.
Research indicates a positive correlation between corruption and innovation, aligning with the "greasing the wheels" theory Krammer (2014) examined data from 7,000 firms in 30 emerging markets, revealing that bribes can enhance firm innovation Despite differences in bribery practices and innovation outcomes, the study concluded that bribery can streamline regulatory processes and aid in the market introduction of new products.
The relationship between corruption and innovation is complex and multifaceted, with evidence suggesting that they can mutually influence each other (Anh et al., 2016) Corruption's impact on innovation varies based on the type of innovation, the nature and extent of corruption, and the regional institutional context.
Access money and access money in Vietnam
Access money involves the exchange of power and money between the political elite and businessmen based on the profit-sharing model (Ang, 2020) According to Ang
In 2020, access money is perceived as an investment opportunity rather than a tax burden, as it fosters relationships with elites for future advantages and secures profitable government contracts or preferential loans Ang (2020) highlights that capitalists who bribe politicians with substantial gifts gain exclusive access to government projects, low-interest loans, and manufacturing opportunities This preferential credit significantly enhances a company's capital, mitigates risk aversion, and encourages investment in research and new technologies Securing government contracts motivates companies to invest in manufacturing plants, upgrade production lines, acquire new machinery, hire additional employees, and improve products to meet contractual requirements The profits from these contracts serve as a vital source of financing for company expansion and future investments.
In "China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption," Ang describes access money as "the steroid" of capitalism, likening its effects to the muscle growth promoted by medical steroids, which require careful supervision to avoid harmful side effects While access money can stimulate short-term investment and growth, it often leads to the misallocation of national resources and undermines the principles of competitive markets Companies may depend on political connections and access money to secure projects, fostering monopolies that deter new businesses and inflate prices, ultimately harming the state budget Thus, although access money can temporarily boost investment, it creates long-term distortions that stifle competition, innovation, and investment incentives (Ang, 2020).
Access money operates similarly to crony capitalism, where capitalists secure significant economic advantages through close ties with political authorities This relationship between corruption and cronyism is reciprocal, driven by shared interests that lead to income inequality, as highlighted in studies of Latin America's crony capitalism In systems rife with cronyism, politically connected business groups are more likely to secure lucrative rents, incentivizing their investments However, these rents often come at the expense of the broader community, as political connections allow these companies to maintain monopolistic market positions, resulting in inflated prices and limited consumer choices Ultimately, the concentration of wealth among a small elite undermines the welfare of society as a whole.
Considering access money in Vietnam: the case study of Viet A test kit
Crony capitalism has significantly infiltrated Vietnam's political and economic landscape, making it essential for businesses to cultivate relationships with officials for smooth operations Many companies view this practice as a necessary investment for future growth (Nguyen et al., 2017) However, this system has severely compromised the business environment, as firms lacking political connections face substantial challenges when entering new markets (Vu, 2015) Without these affiliations, obtaining contracts and projects becomes increasingly difficult, leading to rising business costs and, ultimately, the risk of bankruptcy.
“interest groups” take advantage of opportunities thanks to priority and incentives in accessing the country's resources including land, resources, access to contracts, and commercial rights (Nguyen, Nguyen, Hoang & Ho, 2017)
In 2023, the Vietnam Communist Party faced a significant milestone as it addressed one of the largest corruption scandals in the nation's political history, involving numerous trials of businessmen and public officials linked to the distribution of overpriced COVID-19 test kits (Giang, 2023) The Viet A case exemplifies the corruption between officials and businessmen exploiting state resources, as the company's director, Phan Quoc Viet, allegedly bribed public officials with over 106 billion VND (approximately $4 million) to gain access to research and distribute test kits during the early COVID-19 outbreak Senior leaders from the Ministry of Health facilitated Viet A's operations by introducing them to local authorities, further enhancing the company's market dominance Viet A became the exclusive distributor of test kits in multiple provinces, selling them at prices significantly higher than production costs, resulting in profits reaching trillions of VND (Anh, 2024) Despite concerns regarding the authenticity of the test kits, investigations confirmed that Viet A produced the kits, which passed several quality inspections by the Ministry of Health (Nguyen, 2024).
Access money serves as a double-edged sword, embodying both the "Grease the wheels" and "Sand the wheels" theories It provides companies with essential access to business opportunities, enabling investments in new technologies and facilitating technological transfers While companies may initially invest significantly in technology and production to satisfy government agency demands, this can ultimately stifle healthy market competition Although investment and innovation occur, the resulting monopolies may hinder long-term sustainability, as the sole producer faces little incentive for further improvements Thus, while access money may temporarily fuel innovation, it can ultimately become detrimental to the creative process.