Journal Article

Market exit of firms: Does corruption act as grease or sand?


  • Goel
  • R.
  • Saunoris
  • J.W.
Publication Date

This paper examines whether corruption acts to “grease” or “sand” firms' exit. Corruption could facilitate exit when it is a tax that distorts markets, or it might retard exit when it empowers firms to obtain undue favors. Results, using panel data across US states and considering market exit and firms' death rates as dependent variables, show that greater corruption acts as grease rather than sand in that it facilitates firms' exit/death. In other findings, larger states, greater regulations, and more unemployment contributed to exit, as did some demographic aspects. Higher state minimum wages resulted in firms' death but not exit.

Kiel Institute Expert


JEL Classification
L26, M21, K42, O51