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Corruption and Resource Allocation Under China's Dual Track System

  • Wei Li

    (Duke University)

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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. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May.
  3. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  4. 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.
  5. Andrei Shleifer & Robert Vishny, 1992. "Pervasive Shortages under Socialism," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 237-246, Summer.
  6. Johnson, Simon & Kaufmann, Daniel & McMillan, John & Woodruff, Christopher, 2000. "Why do firms hide? Bribes and unofficial activity after communism," Journal of Public Economics, Elsevier, vol. 76(3), pages 495-520, June.
  7. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  8. 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.
  9. Lau, Lawrence J & Qian, Yingyi & Roland, Gérard, 1997. "Pareto-Improving Economic Reforms through Dual-Track Liberalization," CEPR Discussion Papers 1595, C.E.P.R. Discussion Papers.
  10. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
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