Has China's Anti-Corruption Campaign Slowed Down Growth?

30 Pages Posted: 24 Nov 2017 Last revised: 2 Jul 2018

See all articles by Eduardo Araral

Eduardo Araral

National University of Singapore (NUS) - Lee Kuan Yew School of Public Policy

Li Hui

National University of Singapore (NUS) - Lee Kuan Yew School of Public Policy

Vu Minh Khuong

National University of Singapore (NUS) - Lee Kuan Yew School of Public Policy

Kris Hartley

Education University of Hong Kong

Date Written: October 31, 2017

Abstract

Conventional wisdom suggests that corruption has a negative effect on growth although the mechanisms are subject to debate. We take an alternate approach to challenge this wisdom by testing the economic effects of anti-corruption measures. Using panel data (1999-2016) from 31 provinces in China and difference-in-difference estimation, we find that President Xi Jinping’s anti-corruption campaign is associated with an average 1.3% drop in the real growth rates of provinces, controlling for relevant variables. We speculate that the fierce anti-corruption campaign has made local officials cautious in committing to public investments, the main driver of growth in China in recent years, and has also undermined investor confidence and deterred private investment which would further drag down China’s economic growth. The effect is stronger for higher-income and more industrialized provinces. The result is robust to different model specifications. Our findings support the greasing-the-wheels hypothesis about corruption.

Keywords: Corruption, Anti-Corruption Campaign, Greasing-the-Wheels Hypothesis, Economic Growth, Public Investment

Suggested Citation

Araral, Eduardo and Hui, Li and Khuong, Vu Minh and Hartley, Kris, Has China's Anti-Corruption Campaign Slowed Down Growth? (October 31, 2017). Lee Kuan Yew School of Public Policy Research Paper No. 17-29. Available at SSRN: https://ssrn.com/abstract=3074893 or http://dx.doi.org/10.2139/ssrn.3074893

Eduardo Araral

National University of Singapore (NUS) - Lee Kuan Yew School of Public Policy ( email )

Singapore 117591
Singapore

Li Hui (Contact Author)

National University of Singapore (NUS) - Lee Kuan Yew School of Public Policy ( email )

Singapore 117591
Singapore

Vu Minh Khuong

National University of Singapore (NUS) - Lee Kuan Yew School of Public Policy ( email )

Singapore 117591
Singapore

Kris Hartley

Education University of Hong Kong ( email )

Hong Kong
Hong Kong

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