Working Paper: NBER ID: w19483
Authors: Jie Bai; Seema Jayachandran; Edmund J. Malesky; Benjamin A. Olken
Abstract: Government corruption is more prevalent in poor countries than in rich countries. This paper uses cross-industry heterogeneity in growth rates within Vietnam to test empirically whether growth leads to lower corruption. We find that it does. We begin by developing a model of government officials' choice of how much bribe money to extract from firms that is based on the notion of inter-regional tax competition, and consider how officials' choices change as the economy grows. We show that economic growth is predicted to decrease the rate of bribe extraction under plausible assumptions, with the benefit to officials of demanding a given share of revenue as bribes outweighed by the increased risk that firms will move elsewhere. This effect is dampened if firms are less mobile. Our empirical analysis uses survey data collected from over 13,000 Vietnamese firms between 2006 and 2010 and an instrumental variables strategy based on industry growth in other provinces. We find, first, that firm growth indeed causes a decrease in bribe extraction. Second, this pattern is particularly true for firms with strong land rights and those with operations in multiple provinces, consistent with these firms being more mobile. Our results suggest that as poor countries grow, corruption could subside "on its own,'' and they demonstrate one type of positive feedback between economic growth and good institutions.
Keywords: economic growth; corruption; Vietnam; bribe extraction; property rights
JEL Codes: D73; O11; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firm growth (L25) | Decrease in bribe extraction (D73) |
| Secure property rights (P14) | Decrease in bribe extraction (D73) |
| Operations in multiple provinces (L39) | Decrease in bribe extraction (D73) |
| Economic growth (O49) | Decrease in bribe extraction (D73) |
| Economic growth (O00) | Decrease in bribe extraction (D73) |