Small Business and Corruption : Peculiarities of the Interaction

Abstract

Small business is an important factor of socio-economic development. It creates new jobs, supplies the market with necessary goods and services, and provides a significant share of the added value and GDP of the country. At the same time, small business has essential features that form a specific operating environment: high sensitivity to state regulation, limited access to resources, dynamism of decisionmaking, the need to accept institutional norms of behavior, etc. They provide the ground for the spread of corruption in society. Modern scientific publications mostly refer to corruption as a factor that restrains development, but not everything is so clear-cut. Depending on the state of the economy and the institutional environment, corruption can act as a factor contributing to the country’s development. Our goal was to reveal the specifics of the relationship between corruption and the functioning of small businesses in Ukraine. A comparison of Ukraine and seven neighboring countries showed that the level of corruption negatively affects development indicators. The relatively high spread of corruption in the country is due to the incentives created for small businesses by the current economic policy of the state. The situation is supported by favorable informal institutions that have been formed during the last decades. Although the empirical analysis did not show a high level of dependence between the variables, the qualitative assessment made it possible to put forward several interrelated hypotheses within the framework of the set goal: the threshold interval of corruption; dynamic change of polarity in the influence of corruption on small business; socially effective level of corruption and institutional gap. These hypotheses mainly revolve around the specifics of the country and can be used during the formation of policies regarding of what to do with the spread of corruption.