Measuring governance, corruption, and state capture. How firms and bureaucrats shape the business environment in transition economies

The 1999 Business Environment and Enterprise Performance Survey (BEEPS) assesses in detail the various dimensions of governance from the perspective of about 3000 firms in 20 countries. After introducing the survey framework and measurement approach, the authors present the survey results, focusing on governance, corruption and state capture. The authors pay particular attention to certain forms of grand corruption, notably state capture by parts of the corporate sector - that is, the propensity of firms to shape the underlying rules of the game by "purchasing" decrees, legislation, and influence at the central bank, which is found to be prevalent in a number of transition economies. The survey also measures other dimensions of grand corruption, including those associated with public procurement, and quantifies the more traditional ("pettier") forms of corruption. Cross-country surveys may suffer from bias if firms tend to systematically over- or underestimate the extent of problems within their country. The authors provide a new test for this potential bias, finding little evidence of country perception bias in BEEPS.