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Corruption in Transition

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  • Susanto Basu
  • David D. Li

Abstract

Countries making the transition to a market economy often experience an increase in corruption along with an increase in growth. This observation is puzzling in the context of current models, which emphasize the destructive nature of corruption. We present a model of corruption and reform which shows that under some circumstances, a particular gradualist reform strategy consisting of temporarily relaxing control of corruption provides a windfall to existing bureaucrats, thereby gaining their support for a reform effort that will ultimately reduce the distortions stemming from bureaucratic power. Thus, in the context of reform, a one-time surge of corruption can be a prelude to a permanently reduced level of corruption in the future, which provides the incentive for high current growth. We illustrate our point with examples from the recent Chinese reform.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 161.

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Length: pages
Date of creation: 01 May 1998
Date of revision:
Handle: RePEc:wdi:papers:1998-161

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Cited by:
  1. Blackburn, Keith & Bose, Niloy & Emranul Haque, M., 2006. "The incidence and persistence of corruption in economic development," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2447-2467, December.
  2. Keith Blackburn & Niloy Bose & M. Emranul Haque, 2004. " Public Expenditures, Bureaucratic Corruption and Economic Development," CDMA Conference Paper Series 0407, Centre for Dynamic Macroeconomic Analysis.
  3. Su, Dongwei & Fleisher, Belton M., 1999. "An empirical investigation of underpricing in Chinese IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 7(2), pages 173-202, May.

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