The Economic Impact of a Major Corruption Scandal in China: The Case of Heilongjiang
40 Pages Posted: 12 Feb 2021
Date Written: November 12, 2020
In this paper, we exploit a unique event in the Chinese province of Heilongjiang. Seven high level officials were prosecuted for corruption as an unexpected consequence of an ordinary investigation in 2004. This event exposed a significant amount of corruption and resulted in a substantial anti-corruption initiative within the Heilongjiang province. We use the Synthetic Control Method (SCM) to investigate how this exposition influenced subsequent economic activity. We find that, following the 2004 scandal, GDP per-capita, investment, consumption, and net exports decreased relative to the counterfactual. Government spending, however, increased suggesting that the government may have been attempting to compensate for the negative economic fallout. While our results are only weakly significant, the persistent lack of subsequent economic growth following this massive anti-corruption initiative is an important finding.
Keywords: corruption, economic performance, Chinese governance, Synthetic Control Method
JEL Classification: D73, O1, O43
Suggested Citation: Suggested Citation