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The evolution of corruption and development in transitional economies: Evidence from China

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  • Chan, Kenneth S.
  • Dang, Vinh Q.T.
  • Li, Tingting

Abstract

It is widely accepted in the literature, that the level of corruption is negatively and robustly related to economic development. However, skeptics argue that for transitional economies, this relationship may not hold. Economic reform loosens up the control of local officials and can increase corruption; Corruption and per capita income can be positively related. Using panel provincial data of China from 1995 to 2014 on prosecuted cases of corruption, we discover that during the early phase of China’s economic reform (during Zhu Rongji and Hu-Wen administrations), a positive short-run relationship is indeed observed. But, there is a robust negative long-run cointegration relationship between corruption and per capita income. The development of the market economy improves private wage and income in the long-run. The relatively inefficient and low returns to ordinary corruption cannot compete with rising market returns, which lead to dwindling corruption. However, the share of major corruption cases is increasing over time to be able to compete with rising market wages.

Suggested Citation

  • Chan, Kenneth S. & Dang, Vinh Q.T. & Li, Tingting, 2019. "The evolution of corruption and development in transitional economies: Evidence from China," Economic Modelling, Elsevier, vol. 83(C), pages 346-363.
    • Handle: RePEc:eee:ecmode:v:83:y:2019:i:c:p:346-363
    DOI: 10.1016/j.econmod.2019.09.001
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    Cited by:

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    2. Shenghui Tong, 2022. "Corruption and anti‐corruption in China: a review and future research agenda," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 36(1), pages 3-16, May.
    3. Xiang Zhang & Zongyi Zhang & Han Zhou, 2023. "Grabbing hand or financial constraint mitigation effect? A reexamination of the relationship between institutional development and cash holdings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 631-655, March.

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    More about this item

    Keywords

    Corruption; Development; China;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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