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Who determines Chinese firms' engagement in corruption: Themselves or neighbors?

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  • You, Jing
  • Nie, Huihua

Abstract

We investigate the determinants of firm corruption and highlight contagious diffusion of firm corruption under mutual influences of firms' past corrupt history and between peers. The analysis finds that firms' decision-making on engagement in corruption can be affected vertically by their own past experience of bribing bureaucrats and horizontally by the contagion effects of neighbors' observed malfeasance, while there is substantial regional heterogeneity. Moreover, these horizontal contagion effects are nonlinear depending on the distance between neighbors. We also identify three channels underlying “osmosis” of corruption: firms' geographic networks, information exposure, and local marketization. The strongest contagion effect appears in the eastern region, indicating that petty firm corruption can develop into a systematic phenomenon. More practical anti-corruption policies call for cooperation in design and implementation across administrative areas.

Suggested Citation

  • You, Jing & Nie, Huihua, 2017. "Who determines Chinese firms' engagement in corruption: Themselves or neighbors?," China Economic Review, Elsevier, vol. 43(C), pages 29-46.
    • Handle: RePEc:eee:chieco:v:43:y:2017:i:c:p:29-46
    DOI: 10.1016/j.chieco.2017.01.002
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    Cited by:

    1. Sajad Rahimian, 2021. "Corruption Determinants, Geography, and Model Uncertainty," Papers 2105.12878, arXiv.org.
    2. Chih, Yao-Yu & Demir, Firat & Hu, Chenghao & Liu, Junyi & Shen, Hewei, 2023. "A spatial analysis of local corruption on foreign direct investment: Evidence from Chinese cities," European Journal of Political Economy, Elsevier, vol. 79(C).
    3. Aidt, Toke S. & Hillman, Arye L. & Qijun, LIU, 2020. "Who takes bribes and how much? Evidence from the China Corruption Conviction Databank," World Development, Elsevier, vol. 133(C).

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    More about this item

    Keywords

    Corruption; Spatial model; Copying behavior; Chinese firm;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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