Corruption and Resource Allocation Under China's Dual Track System

Wei Li

No 179, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: Detailed transaction and price data from 769 Chinese state-owned enterprises reveal that corruption --- official diversion of under-priced in-plan industrial goods to the market --- was pervasive in China between 1980 and 1989. More important, corruption has a significant impact on the allocation of both in-plan and outside-plan resources in ways that are consistent with implications of an extended version of Shleifer and Vishny's (1993) model of corruption. The empirical findings expose a serious downside of China's gradualist reform strategy --- corruption. In addition to distorting the allocation of resources, corruption had been blamed for undermining popular support for the reform in 1989.

Date: 2000-08-01
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