Worldwide: Corruption is Stifling Entrepreneurship and Innovation

Conventional wisdom suggests a negative relationship exists between corruption and economic activity. However, some studies* have shown that fraud could serve as a fount of innovation harnessed to more positive outcomes. Even if at the firm-level bribes sometimes present a more efficient alternative to introduce innovative products to markets, economy-wide data prove that a reduction of corruption and administrative barriers is crucial to enable the advantages of a competitive business environment and to unlock the innovative potential of entrepreneurship for more rapid and sustainable economic growth.

For a given level of corruption, one can predict fairly accurately the strength of a country's innovation climate because of the demonstrated relationship between corruption and entrepreneurial and innovative activity. No country with high levels of corruption has simultaneously achieved a score of more than 50 on the Entrepreneurship and Innovation indices scales (from 0 to 100). Individual deviations from the global trend, such as China or Russia which are ranked among the top 50 countries worldwide on the Global Innovation Index, are exceptions that only prove the rule. The development of innovation conditions in these countries has been very slow in part because government intervention that selects industry winners and corruptly awards contracts also reduces the incentive to innovate. 

In the developed world, Italy and Greece exemplify how high rates of corruption slow economic activity. Both countries have among the highest corruption rates in Europe and belong to a cluster of inferior EU member states based on entrepreneurial conditions and innovative capabilities.**

Sources: Global Entrepreneurship Monitor - National Expert Survey Measures, 2014, Index of economic freedom, 2015, Global Entrepreneurship Index, 2015, Global Innovation Index, 2014