The consequences of corruption: evidences from China

Arbeitspapier

With complementary Chinese data sets and alternative corruption measures, we explore the consequences of corruption. Adopting a novel approach we provide evidence that corruption can have both, positive and negative effects, on economic development. The overall impact of corruption might be the balance of the two simultaneous effects within a specific institutional environment ('grease the wheels' and 'sand the wheels'). Corruption is observed to considerably increase income inequality in China. We also find that corruption strongly reduces tax revenue. Looking at things from an expenditure point of view we observe that corruption significantly decreases government spending on education, R&D and public health in China. We also observe that regional corruption significantly reduces inbound foreign direct investment in Chinese regions, which indicates that the pollution haven hypothesis may not hold in China. This finding sheds a new light on the 'China puzzle' that China is the largest developing host of FDI while it is appears to be very corrupt. Finally we observe that corruption substantially aggravates pollution probably through loosening environment regulation, and that it modifies the effects of trade openness and FDI on the stringency of environmental policy in a manner opposite to that observed in literature to date.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Nota di Lavoro ; No. 2010,73

Classification and Topics

• Classification: Wirtschaft ; Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior ; Structure, Scope, and Performance of Government ; Illegal Behavior and the Enforcement of Law
• Subject: Corruption ; China ; Government ; Economic Development ; Inequality ; Environment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dong, Bin ; Torgler, Benno
• Event: Veröffentlichung
• (who): Fondazione Eni Enrico Mattei (FEEM)
• (where): Milano
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/43549
• Last update: 10.03.2025, 11:43 AM CET