The Consequences of Corruption: Evidence from China
AbstractWith complementary Chinese data sets and alternative corruption measures, we explore the consequences of corruption. Adopting a novel approach we provide evidence that corruption can have both, positive and negative effects, on economic development. The overall impact of corruption might be the balance of the two simultaneous effects within a specific institutional environment (“grease the wheels” and “sand the wheels”). Corruption is observed to considerably increase income inequality in China. We also find that corruption strongly reduces tax revenue. Looking at things from an expenditure point of view we observe that corruption significantly decreases government spending on education, R&D and public health in China. We also observe that regional corruption significantly reduces inbound foreign direct investment in Chinese regions, which indicates that the pollution haven hypothesis may not hold in China. This finding sheds a new light on the “China puzzle” that China is the largest developing host of FDI while it is appears to be very corrupt. Finally we observe that corruption substantially aggravates pollution probably through loosening environment regulation, and that it modifies the effects of trade openness and FDI on the stringency of environmental policy in a manner opposite to that observed in literature to date.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2010.73.
Date of creation: Jun 2010
Date of revision:
Corruption; China; Government; Economic Development; Inequality; Environment;
Other versions of this item:
- Bin Dong & Benno Torgler, 2010. "The Consequences of Corruption: Evidence from China," CREMA Working Paper Series 2010-06, Center for Research in Economics, Management and the Arts (CREMA).
- Bin Dong & Benno Torgler, 2010. "The Consequences of Corruption: Evidence from China," School of Economics and Finance Discussion Papers and Working Papers Series 256, School of Economics and Finance, Queensland University of Technology.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-24 (All new papers)
- NEP-DEV-2010-07-24 (Development)
- NEP-LAW-2010-07-24 (Law & Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- The Causes and Consequences of Corruption: Evidence from China
by Ariel Goldring in Free Market Mojo on 2010-05-14 12:07:09
- Raluca E. Buia & M. Cristina Molinari, 2008.
"Corruption and Positive Selection in Privatization,"
2008_43, Department of Economics, University of Venice "Ca' Foscari".
- Buia, Raluca E. & Molinari, M. Cristina, 2012. "Corruption and positive selection in privatization," Research in Economics, Elsevier, vol. 66(4), pages 297-304.
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