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Title: Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam
Authors: Bai, Jie
Jayachandran, Seema
Malesky, Edmund J.
Olken, Benjamin A.
Keywords: Economic Growth
Việt Nam
Series/Report no.: NBER Working Paper No. 19483;
Abstract: Government corruption is more prevalent in poor countries than in rich countries. This paperuses cross-industry heterogeneity in growth rates within Vietnam to test whether growth leads to lower corruption. 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 decreases the rate of bribe extraction under plausible assumptions, with the benefit to officials of demanding a given shareof revenue as bribes outweighed by the increased risk that firms will move elsewhere. This logic suggests thatgrowth is less effective at reducing bribes if firms are immobile, for example because they lack property rights over their land. Our empirical analysis uses survey data 58 collected from over 13,000 Vietnamese firms between2006 and 2010 and an instrumental variables strategy based on industry growth in other provinces. We find that, indeed, faster growing firms experience more rapid declines in bribe payments. Moreover, this pattern is particularly true for firms with strong land rights that could more easily relocate. Our results suggest that as poor countries grow, corruption could subside on itsown," and they demonstrate one type of positive feedback between economic growth and good institutions.
Appears in Collections:Economic development

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