_Enterprise Surveys_ collected by the World Bank that cover business conditions in most major economies across the globe. These surveys capture firm perceptions about the quality of the business environment, as well as objective information on firm characteristics and the problems firms must deal with when transacting with the public or private sector. These problems include delays or difficulties in gaining access to electricity or credit, the extent of obligations from complex taxes, and frequent inspections, among others. The _Enterprise Surveys_ also contain information on firms’ perceptions about the problems that corruption poses for their performance, as well as records on whether firms were asked to make “an 5 informal gift or payment” when requesting access to basic infrastructure services or government permits. The latter form the basis of the analysis in this paper.

We first matched data on perceptions and on instances of bribery and show that firms that solicit services or licenses and are not asked for bribes hold a more optimistic view about the effect of corruption on firm performance, relative to both firms that are victims of extortion and those that did not request services and hence are beyond the reach of corrupt officials. We take this as evidence suggesting that perception-based measures of corruption are an imperfect proxy for the true incidence of graft.

We then use the _Enterprise Survey_ data to construct a _Graft Index of Firm Transactions_ (GIFT). The index reflects the probability that a firm will be asked for an informal gift or bribe when requesting access to infrastructure services or permits. The proposed index has several advantages over alternative measures of corruption. Most notably, the index relies on “hard” data — firms’ encounters with corrupt practices — and not on managers’ or experts’ perceptions about the extent of corruption in a country. Another advantage is that our primary data come from nationally representative surveys and hence capture the experience of the typical firm’s dealing with dishonest government officials. The fact that we focus on a common set of transactions guarantees that our results are comparable across countries. Admittedly, the index is based on a narrow definition of graft that focuses on petty bribes and we do not directly account for several other forms of corruption (e.g., in the procurement of government contracts) that could potentially have a bigger effect on firm performance.

The index strongly indicates that firms in Africa are particularly vulnerable to graft. Entrepreneurs in the region had on average a 19 percent chance of being asked for bribes; among the comparatively wealthier Latin American countries, the figure was only a third as high (7 percent). Within each of the two regions, and even among neighboring countries, there is substantial variation in the incidence of bribery, suggesting that corruption is not necessarily explained by cultural or historical factors. The index also shows that bribery is more common when requesting licenses and permits than when soliciting infrastructure services.

5 Specifically, access to electricity, water, telephone services, construction permits, operating licenses, and import licenses.