THE IMPACT OF CORRUPTION ON BUSINESS DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES IN KAZAKHSTAN

Abstract

Corruption literature has long debated the influence of corruption on the business performance of small- and medium-sized entrepreneurs (SMEs), suggesting that corruption can either “grease the wheels” or “sand the wheels” of local businesses. Using the World Bank BEEPS data for 2009, 2013, and 2019, and semi-structured interviews with Kazakhstani SME owners, we investigate the impact of corruption on SME performance, particularly sales and employment growth, and identify how Kazakhstani SME owners perceive corruption while running their enterprises. Our first contribution is that in support of the “sand the wheels'' theory, research findings show that corruption decreases sales and employment growth worldwide. In the case of Kazakhstani SMEs, even though the relationship between corruption and sales and employment growth remains ambiguous, it is possible to start and grow an enterprise in Kazakhstan without corruption. Our second contribution shows that Kazakhstani SME owners do not perceive corruption as a severe obstacle for running an enterprise. More broadly, we find out that corruption perception is biased; it is largely influenced by the collective distrust for the government and varies with the role of the government, whether it is a service provider or a client. This study concludes that Kazakhstan does well in tackling corruption at the SME level but falls short of state-level corruption.