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Corruption and Resource Allocation: Evidence from China


  • Wei Li


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.

Suggested Citation

  • Wei Li, 2001. "Corruption and Resource Allocation: Evidence from China," William Davidson Institute Working Papers Series 396, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2001-396

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    References listed on IDEAS

    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    2. 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 533-565, May.
    3. Lawrence J. Lau & Yingyi Qian & Gerard Roland, 2000. "Reform without Losers: An Interpretation of China's Dual-Track Approach to Transition," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 120-143, February.
    4. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
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    More about this item


    corruption; resources allocation; China; dual-track system;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform


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