Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam

Seema Jayachandran, Benjamin Olken, Jie Bai and Edmund J. Malesky

No 9677, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Government corruption is more prevalent in poor countries than in rich countries. This paper uses cross-industry heterogeneity in growth rates within Vietnam to test empirically whether growth leads to lower corruption. We find that it does. We begin by developing a model of government officials' choice of how much bribe money to extract from firms that is based on the notion of inter-regional tax competition, and consider how officials' choices change as the economy grows. We show that economic growth is predicted to decrease the rate of bribe extraction under plausible assumptions, with the benefit to officials of demanding a given share of revenue as bribes outweighed by the increased risk that firms will move elsewhere. This effect is dampened if firms are less mobile. Our empirical analysis uses survey data collected from over 13,000 Vietnamese firms between 2006 and 2010 and an instrumental variables strategy based on industry growth in other provinces. We find, first, that firm growth indeed causes a decrease in bribe extraction. Second, this pattern is particularly true for firms with strong land rights and those with operations in multiple provinces, consistent with these firms being more mobile. Our results suggest that as poor countries grow, corruption could subside

Keywords: Corruption; Economic growth (search for similar items in EconPapers)
JEL-codes: D73 O43 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-dev, nep-gro, nep-pbe and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Downloads: (external link)
https://cepr.org/publications/DP9677 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam (2013)
Working Paper: Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:9677

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP9677

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().