NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam

Jie Bai, Seema Jayachandran, Edmund J. Malesky, Benjamin A. Olken

NBER Working Paper No. 19483
Issued in September 2013
NBER Program(s):   DEV   EFG   POL

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.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Acknowledgments and Disclosures

Machine-readable bibliographic record - MARC, RIS, BibTeX

Users who downloaded this paper also downloaded these:
Ng and Wright w19469 Facts and Challenges from the Great Recession for Forecasting and Macroeconomic Modeling
Baker and Bloom w19475 Does Uncertainty Reduce Growth? Using Disasters as Natural Experiments
McCord and Sachs w19512 Development, Structure, and Transformation: Some Evidence on Comparative Economic Growth
Fogel w11125 RECONSIDERING EXPECTATIONS OF ECONOMIC GROWTH AFTER
Banerjee, Mullainathan, and Hanna w17968 Corruption
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us