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Corruption and Resource Allocation Under China's Dual Track System

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  • Wei Li

    (Duke University)

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    Abstract

    Detailed transaction and price data from 769 Chinese state-owned enterprises reveal that corruption --- official diversion of under-priced in-plan industrial goods to the market --- was pervasive in China between 1980 and 1989. More important, corruption has a significant impact on the allocation of both in-plan and outside-plan resources in ways that are consistent with implications of an extended version of Shleifer and Vishny's (1993) model of corruption. The empirical findings expose a serious downside of China's gradualist reform strategy --- corruption. In addition to distorting the allocation of resources, corruption had been blamed for undermining popular support for the reform in 1989.

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    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0179.

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    Date of creation: 01 Aug 2000
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    Handle: RePEc:ecm:wc2000:0179

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    1. Lawrence J. Lau & Yingyi Qian & Gerard Roland, . "Reform without Losers: An Interpretation of China's Dual-Track Approach to Transition," Working Papers 99010, Stanford University, Department of Economics.
    2. Gordon, Roger H. & Li, Wei, 2003. "Government as a discriminating monopolist in the financial market: the case of China," Journal of Public Economics, Elsevier, vol. 87(2), pages 283-312, February.
    3. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
    4. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
    5. Heckman, James J & Macurdy, Thomas E, 1980. "A Life Cycle Model of Female Labour Supply," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 47-74, January.
    6. Johnson, Simon & McMillan, John & Woodruff, Christopher, 1999. "Why do Firms Hide? Bribes and Unofficial Activity After Communism," CEPR Discussion Papers 2105, C.E.P.R. Discussion Papers.
    7. Lawrence J. Lau & Yingyi Qian & Gerard Roland, . "Pareto-Improving Economic Reforms through Dual-Track Liberalization," Working Papers 97007, Stanford University, Department of Economics.
    8. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    9. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    10. Andrei Shleifer & Robert Vishny, 1992. "Pervasive Shortages under Socialism," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 237-246, Summer.
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