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Corruption and Resource Allocation: Evidence from China

  • Wei Li
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Exploiting a unique data set containing transactions data from a panel of 769 Chinese state-owned enterprises between 1980 and 1989, this paper tests microeconomic implications of a pervasive form of corruption --official diversion of under-priced, in-plan goods to the market. Corruption has the predicted effects on resource allocation. Official under-pricing of in-plan goods, which lowers the marginal cost of diversion, increases the procurement of output into the plan for the purpose of diversion. Market competition introduced by allowing firms to sell directly to the market appears to reduce corruption and therefore lessen its distortions.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp396.pdf
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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 396.

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Length: pages
Date of creation: 01 Jun 2001
Date of revision:
Handle: RePEc:wdi:papers:2001-396
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  1. Lau, Lawrence J & Qian, Yingyi & Roland, Gérard, 1998. "Reform Without Losers: An Interpretation of China's Dual-Track Approach to Transition," CEPR Discussion Papers 1798, C.E.P.R. Discussion Papers.
  2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  3. Honore, Bo E, 1992. "Trimmed LAD and Least Squares Estimation of Truncated and Censored Regression Models with Fixed Effects," Econometrica, Econometric Society, vol. 60(3), pages 533-65, May.
  4. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
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