Corruption and Resource Allocation: Evidence from China

26 Pages Posted: 6 Sep 2001

See all articles by Wei Li

Wei Li

University of Virginia - Darden School of Business; Centre for Economic Policy Research (CEPR)

Date Written: June 2001

Abstract

Exploiting a unique data set containing transactions data from a panel of 769 Chinese stateowned 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.

JEL Classification: L51, L12, P21

Suggested Citation

Li, Wei, Corruption and Resource Allocation: Evidence from China (June 2001). Darden Business School Working Paper No. 01-18; William Davidson Institute Working Paper No. 396. Available at SSRN: https://ssrn.com/abstract=282523 or http://dx.doi.org/10.2139/ssrn.282523

Wei Li (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
804-243-7691 (Phone)
804-243-7681 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/li.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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