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Corruption and firm growth: evidence from China

Corruption and firm growth: evidence from China
Corruption and firm growth: evidence from China
Corruption is one of the most pervasive obstacles to economic and social development. However, in the existing literature it appears that corruption seems to be less harmful in some countries than in others. The most striking examples are well known as the “East Asian paradox”: countries displaying exceptional growth records despite having thriving corruption cultures. The aim of this paper is to explain the high corruption but fast economic growth puzzle in China by providing firm-level evidence of the relation between corruption and growth and investigating how financial development influences the former relationship. Our empirical results show that corruption is likely to contribute to firms' growth. We further highlight the substitution relationship between corruption and financial development on firm growth. This means that corruption appears not to be a vital constraint on firm growth if financial markets are underdeveloped. However, pervasive corruption deters firm growth where there are more developed financial markets. This implies that fast firm growth will not be observed until a later stage of China's development when financial markets are well-functioning and corruption is under control. Furthermore, the substitution relationship exists in the private and state-owned firms. Geographically, similar results can be seen in the Southeast and Central regions.
corruption, firm growth, chinese economy
1043-951X
415-433
Wang, Yuanyuan
3a880197-fe32-45fd-bd74-1949270e2ad8
You, Jing
53ccd075-b41f-477f-b5a7-665f1fc6002b
Wang, Yuanyuan
3a880197-fe32-45fd-bd74-1949270e2ad8
You, Jing
53ccd075-b41f-477f-b5a7-665f1fc6002b

Wang, Yuanyuan and You, Jing (2012) Corruption and firm growth: evidence from China. China Economic Review, 23 (2), 415-433. (doi:10.1016/j.chieco.2012.03.003).

Record type: Article

Abstract

Corruption is one of the most pervasive obstacles to economic and social development. However, in the existing literature it appears that corruption seems to be less harmful in some countries than in others. The most striking examples are well known as the “East Asian paradox”: countries displaying exceptional growth records despite having thriving corruption cultures. The aim of this paper is to explain the high corruption but fast economic growth puzzle in China by providing firm-level evidence of the relation between corruption and growth and investigating how financial development influences the former relationship. Our empirical results show that corruption is likely to contribute to firms' growth. We further highlight the substitution relationship between corruption and financial development on firm growth. This means that corruption appears not to be a vital constraint on firm growth if financial markets are underdeveloped. However, pervasive corruption deters firm growth where there are more developed financial markets. This implies that fast firm growth will not be observed until a later stage of China's development when financial markets are well-functioning and corruption is under control. Furthermore, the substitution relationship exists in the private and state-owned firms. Geographically, similar results can be seen in the Southeast and Central regions.

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More information

Published date: June 2012
Keywords: corruption, firm growth, chinese economy
Organisations: Economics

Identifiers

Local EPrints ID: 348208
URI: http://eprints.soton.ac.uk/id/eprint/348208
ISSN: 1043-951X
PURE UUID: 59b099a9-c76b-4ae1-9134-9761ff3fc6b6

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Date deposited: 08 Feb 2013 15:24
Last modified: 14 Mar 2024 12:56

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Contributors

Author: Yuanyuan Wang
Author: Jing You

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