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Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam

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  • Bai, Jie
  • Jayachandran, Seema
  • Malesky, Edmund J.
  • Olken, Benjamin

Abstract

Government corruption is more prevalent in poor countries than in rich countries. This paper uses cross-industry heterogeneity in growth rates within Vietnam to test empirically whether growth leads to lower corruption. We find that it does. We begin by developing a model of government officials' choice of how much bribe money to extract from firms that is based on the notion of inter-regional tax competition, and consider how officials' choices change as the economy grows. We show that economic growth is predicted to decrease the rate of bribe extraction under plausible assumptions, with the benefit to officials of demanding a given share of revenue as bribes outweighed by the increased risk that firms will move elsewhere. This effect is dampened if firms are less mobile. Our empirical analysis uses survey data collected from over 13,000 Vietnamese firms between 2006 and 2010 and an instrumental variables strategy based on industry growth in other provinces. We find, first, that firm growth indeed causes a decrease in bribe extraction. Second, this pattern is particularly true for firms with strong land rights and those with operations in multiple provinces, consistent with these firms being more mobile. Our results suggest that as poor countries grow, corruption could subside

Suggested Citation

  • Bai, Jie & Jayachandran, Seema & Malesky, Edmund J. & Olken, Benjamin, 2013. "Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam," CEPR Discussion Papers 9677, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9677
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    1. repec:kap:jbuset:v:148:y:2018:i:4:d:10.1007_s10551-016-3016-y is not listed on IDEAS
    2. Ansari, Dawud, 2016. "Resource curse contagion in the case of Yemen," Resources Policy, Elsevier, vol. 49(C), pages 444-454.
    3. Ramirez, Carlos D., 2014. "Is corruption in China “out of control”? A comparison with the US in historical perspective," Journal of Comparative Economics, Elsevier, vol. 42(1), pages 76-91.
    4. Kevin Williams, 2015. "Foreign direct investment in Latin America and the Caribbean: an empirical analysis," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 52(1), pages 57-77, May.
    5. Raymond Fisman & Yongxiang Wang, 2015. "The Mortality Cost of Political Connections," NBER Working Papers 21266, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    corruption; economic growth;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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