EconPapers    
Economics at your fingertips  
 

Local corruption, total factor productivity and firm heterogeneity: Empirical evidence from Chinese manufacturing firms

Firat Demir, Chenghao Hu, Junyi Liu and Hewei Shen

World Development, 2022, vol. 151, issue C

Abstract: This paper examines the effects of local corruption on total factor productivity (TFP) of manufacturing firms in China. The empirical analysis is based on a novel corruption dataset we developed on local corruption in China at various disaggregation levels. The empirical results using fixed effects and instrumental variable estimation methods suggest that corruption has an economically and statistically significant negative effect on firm productivity. The estimated economic cost of corruption is found to be high; a one standard deviation increase in corruption reduces firm TFP by around 3.8%. We also find that firm heterogeneity shapes business reactions to corruption in a given geographical location. Increasing corruption hurts firms less when they are publicly owned, export-oriented, more profitable, have faster growth, or operate in industries with lower levels of competition. We also show that firms in cities with higher levels of human capital and higher levels of public spending on education and scientific research are less sensitive to corruption. As for transmission channels, we find that corruption is likely to hurt TFP through its negative effects on private ownership, investment rate, export intensity, innovation, leverage, employment growth, and profit.

Keywords: Local corruption; Total factor productivity; Firm and city heterogeneity; Chinese manufacturing firms (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0305750X21003855
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:wdevel:v:151:y:2022:i:c:s0305750x21003855

DOI: 10.1016/j.worlddev.2021.105770

Access Statistics for this article

World Development is currently edited by O. T. Coomes

More articles in World Development from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2024-02-12
Handle: RePEc:eee:wdevel:v:151:y:2022:i:c:s0305750x21003855