This paper uses panel data from the Small and Medium Enterprise Survey in Vietnam
from 2005 to 2013 to investigate the incidence and size of corruption in Vietnam.
The Heckman’s two-step model is employed to take into account censored nature of the
data on bribes and sample selection bias. We find strong evidence that the propensity
to bribe as well as bribe amounts are highly positively correlated with interaction level
with government officials, firms’ ability to pay, and regulatory-type burdens imposed
on firms. In addition, firms without official business registration licenses are more
likely to avoid paying the informal costs. These results are robust when lagged values
of profit are used as instruments for profit