This paper tests whether firm growth reduces corruption, using crossindustry
variation in growth rates in Vietnam and survey data from over
13,000 Vietnamese firms between 2006 and 2010. We employ two instrumental
variables strategies, one based on growth in a firm’s industry in
other provinces within Vietnam and a second based on industry growth in
neighboring China. In both specifications, we find that firm growth causes
a decrease in bribe extraction by government officials. We then model one
mechanism that could generate such an effect; in our model, government
officials’ choice of how much bribe money to extract from firms is modulated
by inter-jurisdictional competition. A key secondary prediction of
the model is that the negative effect of growth on bribery is larger if firms
are more mobile. We find empirical support for this prediction: Effects are
larger for firms whose property rights to their land are transferable and
who have operations in multiple provinces.