China’s Anti-Corruption Campaign and Entrepreneurship

Journal of Law and Economics, Forthcoming

46 Pages Posted:

See all articles by Dongmin Kong

Dongmin Kong

Department of Finance, Huazhong University of Science and Technology; School of Finance, Zhongnan University of Economics and Law

Ni Qin

School of Economics, Huazhong University of Science and Technology

Date Written: March 1, 2019

Abstract

This paper investigates the causal effect of corruption on entrepreneurship. We use staggered anti-corruption investigations in China as exogenous shocks to conduct difference-in-differences estimation, and find that the country’s anti-corruption campaign has a sizeable positive effect on entrepreneurship, especially in urban areas, areas with high levels of trust, and areas with short verdict process after investigation. We discuss four plausible mechanisms for the positive effect of the anti-corruption campaign: reduced rent seeking, improved government quality, technology spillover from innovation, and the easing of financial constraints for non-SOEs. Our results are robust to a battery of tests based on different specifications and alternative measures. Overall, this study provides a timely evaluation of the importance of anti-corruption efforts in a typical emerging market.

Keywords: Corruption; Entrepreneurship; China; Quasi-experiment

JEL Classification: D73, K42, L26, O53

Suggested Citation

Kong, Dongmin and Qin, Ni, China’s Anti-Corruption Campaign and Entrepreneurship (March 1, 2019). Journal of Law and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=

Dongmin Kong (Contact Author)

Department of Finance, Huazhong University of Science and Technology ( email )

Wuhan, Hubei 430074
China

School of Finance, Zhongnan University of Economics and Law ( email )

Wuhan, Hubei 430073
China

Ni Qin

School of Economics, Huazhong University of Science and Technology ( email )

1037# Luoyu Road, Hongshan Dist.
Wuhan, Hubei 430074
China

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