Corruption and innovation in China

48 Pages Posted: 19 May 2022 Last revised: 13 Jul 2023

Date Written: May 13, 2022


In this paper, I study the effects of corruption on firm innovation, using a data set that covers the registration and patent application records of the universe of firms in China. I provide empirical evidence that corruption significantly deters innovation. Such effects are stronger for officials with higher ability, but can be limited by imposing promotion incentives to the officials in charge. I build and estimate a stylized quantitative firm-dynamics model, in which firms bribe the corrupt officials in exchange for a lower entry cost and more protection. Simulation suggests that corruption reduces welfare by 11.3%.

Keywords: corruption, innovation, firm dynamics, welfare, China

JEL Classification: C15, D21, D22, D50, D60, D72, D73

Suggested Citation

Shi, Xiangyu, Corruption and innovation in China (May 13, 2022). Available at SSRN: or

Xiangyu Shi (Contact Author)

Yale University ( email )

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