Corruption and Reform

The Davidson Institute Working Paper Series No. 55

Posted: 20 Jul 1998

See all articles by Susanto Basu

Susanto Basu

Boston College, College of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

David D. Li

Hong Kong University of Science & Technology (HKUST) - Department of Economics

Date Written: June 1996

Abstract

Countries making the transition to a market economy often experience an increase in corruption along with an increase in growth. This observation is puzzling in the context of current models, which emphasize the destructive nature of corruption. We present a model of corruption and reform which shows that udner some circumstances a particular gradualist reform strategy is optimal. This strategy consists of temporarily relaxing control of corruption in order to provide a windfall to existing bureaucrats, therby gaining their support for a reform effort that will ultimately reduce the distortions stemming from bureaucratic power. Thus, a one-time surge of corruption can be a prelude to a permanently reduced level of corruption in the future, which provides the incentive for high current growth. We illustrate our point with examples from the recent Chinese reform.

JEL Classification: D72, P21, O12

Suggested Citation

Basu, Susanto and Li, David Daokui, Corruption and Reform (June 1996). The Davidson Institute Working Paper Series No. 55, Available at SSRN: https://ssrn.com/abstract=38044

Susanto Basu

Boston College, College of Arts and Sciences, Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467-3806
United States
617-552-2308 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

David Daokui Li (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China
(852) 2358-7610 (Phone)
(852) 2358-2084 (Fax)

HOME PAGE: http://home.ust.hk/~davidli

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