The Economic Impact of a Major Corruption Scandal in China: The Case of Heilongjiang

40 Pages Posted: 12 Feb 2021

See all articles by Alberto Batinti

Alberto Batinti

University of New Hampshire

Yang Zhou

University of North Texas - Department of Economics

Jamie Bologna Pavlik

Texas Tech University - Department of Agricultural and Applied Economics

Date Written: November 12, 2020

Abstract

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

Batinti, Alberto and Zhou, Yang and Bologna Pavlik, Jamie, The Economic Impact of a Major Corruption Scandal in China: The Case of Heilongjiang (November 12, 2020). Available at SSRN: https://ssrn.com/abstract=3729592 or http://dx.doi.org/10.2139/ssrn.3729592

Alberto Batinti

University of New Hampshire ( email )

15 College Road
Durham, NH 03824
United States

Yang Zhou (Contact Author)

University of North Texas - Department of Economics ( email )

1155 Union Circle #311457
Denton, TX Texas 76203-5017
United States

HOME PAGE: http://economics.unt.edu/people/yang-zhou

Jamie Bologna Pavlik

Texas Tech University - Department of Agricultural and Applied Economics ( email )

Suite 167, 2625 Memorial Circle
TTU Administration
Lubbock, TX 79409
United States

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