Corruption and Resource Allocation: Evidence from China

Wei Li

No 396, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Exploiting a unique data set containing transactions data from a panel of 769 Chinese state-owned enterprises between 1980 and 1989, this paper tests microeconomic implications of a pervasive form of corruption --official diversion of under-priced, in-plan goods to the market. Corruption has the predicted effects on resource allocation. Official under-pricing of in-plan goods, which lowers the marginal cost of diversion, increases the procurement of output into the plan for the purpose of diversion. Market competition introduced by allowing firms to sell directly to the market appears to reduce corruption and therefore lessen its distortions.

Keywords: corruption; resources allocation; China; dual-track system (search for similar items in EconPapers)
JEL-codes: L12 L51 P21 (search for similar items in EconPapers)
Pages: pages
Date: 2001-06-01
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Citations: View citations in EconPapers (2)

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