Corruption and Investment : Theory and Evidence from China

Bingyong ZHENG, Junji XIAO

Research output: Journal PublicationsJournal Article (refereed)peer-review

2 Citations (Scopus)

Abstract

We consider a principal-agent model to examine the conditions under which corruption prompts investment. We also investigate three policies that can be used to combat corruption: strengthening monitoring, increasing compensation, and enhancing accountability. Our theory suggests that increasing monitoring intensity mitigates corruption at the cost of reduced investment. The most cost- effective policy to control corruption is to enhance accountability, which reduces corruption without decreasing growth-enhancing investment. We test our theo- retical predictions using Chinese infrastructure investment and corruption data. The data show that infrastructure investment is negatively correlated with anti- corruption effort, as predicted by the theoretical model.

Original languageEnglish
Pages (from-to)40-54
Number of pages15
JournalJournal of Economic Behavior and Organization
Volume175
Early online date17 May 2020
DOIs
Publication statusPublished - Jul 2020
Externally publishedYes

Keywords

  • China
  • Corruption
  • Infrastructure development
  • Investment incentive

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