Does Social Capital Reduce Entrepreneurs' Petty Corruption? Evidence Across Indonesian Regions

Abstract

Petty corruption is a barrier to entrepreneurship in emerging countries, justifying to investigate its determinants. Using data on 1,240 entrepreneurs across Indonesian regions, we analyse the effects of social capital. Two-evel ordered probit regressions show that weak-ties discourage entrepreneurs' bribing, strong-ties encourage it, whereas this latter effect is moderated by the quality of access to formal credit. Bribing banks or turning to relatives for external funding are alternative solutions for entrepreneurs facing poor access to formal credit, a common feature in emerging countries, and the second solution is preferred given the risk and psychological costs of corruption.