Corruption and Investment: Theory and Evidence from China

Bingyong Zheng and Junji Xiao ()

Journal of Economic Behavior & Organization, 2020, vol. 175, issue C, 40-54

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.

Keywords: Corruption; Investment incentive; Infrastructure development; China (search for similar items in EconPapers)
JEL-codes: D7 H4 O12 O53 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268120300858
Full text for ScienceDirect subscribers only

Related works:
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:eee:jeborg:v:175:y:2020:i:c:p:40-54

DOI: 10.1016/j.jebo.2020.03.018

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().