NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Jie Bai

Microsoft Research New England
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Cambridge, MA 02142

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NBER Working Papers and Publications

September 2013Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam
with Seema Jayachandran, Edmund J. Malesky, Benjamin A. Olken: w19483
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 an...
 
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