Political Corruption and Private Investment: The Case of China

47 Pages Posted: 6 Feb 2020

See all articles by Robert Grafstein

Robert Grafstein

University of Georgia - School of Public and International Affairs

Rongbin Han

University of Georgia

Weiqi Zhang

Suffolk University

Date Written: January 13, 2020

Abstract

The institutionalization of private property rights promotes economic development. Political corruption, it is widely held, retards development. During its reform and opening up period, China did not recognize property rights, became increasingly corrupt, yet broke world growth records. We resolve this paradox by highlighting the way systemic corruption can partly substitute for absent property rights by providing investors with implicit protection against expropriation. We use a principal-agent model to study the mechanism by which systemic corruption's impact on political risk affects individual investment decisions. We empirically assess this mechanism by examining the influence of aggregate corruption on the productivity of investments in China.

Keywords: corruption, China, growth

JEL Classification: O17, P52

Suggested Citation

Grafstein, Robert and Han, Rongbin and Zhang, Weiqi, Political Corruption and Private Investment: The Case of China (January 13, 2020). Available at SSRN: https://ssrn.com/abstract=3518489 or http://dx.doi.org/10.2139/ssrn.3518489

Robert Grafstein (Contact Author)

University of Georgia - School of Public and International Affairs

Department of Political Science
Baldwin Hall
Athens, GA 30602
United States

Rongbin Han

University of Georgia ( email )

322 Candler Hall
Athens, GA Georgia 30602-6254
United States

Weiqi Zhang

Suffolk University ( email )

Boston, MA 02108
United States

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