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Corruption, growth, and increasing returns to production specialization

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  • Juin-Jen Chang
  • Huei-chung Lu
  • Hsueh-fang Tsai

Abstract

type="main" xml:lang="en"> This paper builds an endogenous growth model in which a government implements entry regulations and bureaucrats are corrupt, with both governing firms’ entry. We show that in the presence of increasing returns to production specialization, high corruption and high growth can coexist. This explains why some developing countries are stuck with high levels of corruption and low levels of growth, while others are not. Moreover, in the face of either stricter anti-corruption enforcement or deregulation by promoting market competition, corruption may exhibit an intensive margin response in the sense that the number of bribe-paying firms decreases, but each individual firm bribes more for a production license.

Suggested Citation

  • Juin-Jen Chang & Huei-chung Lu & Hsueh-fang Tsai, 2015. "Corruption, growth, and increasing returns to production specialization," International Journal of Economic Theory, The International Society for Economic Theory, vol. 11(3), pages 329-345, September.
    • Handle: RePEc:bla:ijethy:v:11:y:2015:i:3:p:329-345
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    1. repec:prg:jnlpep:v:preprint:id:647:p:1-19 is not listed on IDEAS
    2. Chen, Chiou-Wen & Yang, Meizhi, 2024. "The relationship between bureaucratic corruption and financial crisis in an open economy," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 1583-1594.
    3. Marek Tomaszewski, 2018. "Corruption - A Dark Side of Entrepreneurship. Corruption and Innovations," Prague Economic Papers, Prague University of Economics and Business, vol. 2018(3), pages 251-269.

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