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Corruption in Transition

Author

Listed:
  • Susanto Basu
  • David D. Li

Abstract

Countries making the transition to a market economy often experience an increase in corruption along with an increase in growth. This observation is puzzling in the context of current models, which emphasize the destructive nature of corruption. We present a model of corruption and reform which shows that under some circumstances, a particular gradualist reform strategy consisting of temporarily relaxing control of corruption provides a windfall to existing bureaucrats, thereby gaining their support for a reform effort that will ultimately reduce the distortions stemming from bureaucratic power. Thus, in the context of reform, a one-time surge of corruption can be a prelude to a permanently reduced level of corruption in the future, which provides the incentive for high current growth. We illustrate our point with examples from the recent Chinese reform.

Suggested Citation

  • Susanto Basu & David D. Li, 1998. "Corruption in Transition," William Davidson Institute Working Papers Series 161, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:1998-161
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    File URL: https://deepblue.lib.umich.edu/bitstream/handle/2027.42/39549/wp161.pdf
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    Citations

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    Cited by:

    1. Keith Blackburn & Niloy Bose & M. Emranul Haque, 2010. "Endogenous corruption in economic development," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 37(1), pages 4-25, January.
    2. Blackburn, Keith & Bose, Niloy & Emranul Haque, M., 2006. "The incidence and persistence of corruption in economic development," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2447-2467, December.
    3. Keith Blackburn & Niloy Bose & M. Emranul Haque, 2011. "Public Expenditures, Bureaucratic Corruption And Economic Development," Manchester School, University of Manchester, vol. 79(3), pages 405-428, June.
    4. Su, Dongwei & Fleisher, Belton M., 1999. "An empirical investigation of underpricing in Chinese IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 7(2), pages 173-202, May.
    5. Savvateev Alexey, 2001. "The role of externalities in determining the average level of corruption in the production process," EERC Working Paper Series 2k/04e, EERC Research Network, Russia and CIS.
    6. Olga Popova, 2010. "Corruption, Voting and Employment Status: Evidence from Russian Parliamentary Elections," CERGE-EI Working Papers wp428, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform
    • P - Political Economy and Comparative Economic Systems
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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