Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam

Bai, Jushan; Jayachandran, Seema; Malesky, Edmund J.; Olken, Benjamin A.

doi:10.3386/w19483

Cited by 76 publications

(63 citation statements)

References 63 publications

(39 reference statements)

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“…The theoretical foundations of this eld were laid by Le (1964), Becker andStigler (1974), andVishny (1993), which consider the circumstances where bribery and corruption will be most costly (Olken and Pande (2012) provide a recent survey). Mauro's (1995) cross-country analysis of corruption and growth was the rst of many studies over the past couple of decades to explore the correlates of corruption empirically (see Fisman and Svensson (2007) and Bai et al (2013) for within-country analyses). This literature has often used the political connections of businesses -the measure we employ in this paper -as a marker for favorable treatment by government ocials.…”

Section: Raymond Fismanmentioning

confidence: 99%

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The Mortality Cost of Political Connections

Fisman¹,

Wang²

2015

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We study the relationship between the political connections of Chinese firms and workplace fatalities. In our preferred specification we find that the worker death rate for connected companies is two to three times that of unconnected firms (depending on the sample employed), a pattern that holds for within-firm estimations. The connections-mortality relationship is attenuated in provinces where safety regulators' promotion is contingent on meeting safety targets. In the absence of fatalities, connected firms receive fewer reports of major violations for safety compliance, whereas in years of fatal accidents the rate of reported violations is identical. Moreover, fatal accidents produce negative returns at connected companies and are associated with the subsequent departure of well-connected executives. These results provide suggestive evidence that connections enable firms to avoid (potentially costly) compliance measures, rather than using connections to avoid regulatory response after accidents occur. Our findings emphasize the social costs of political connections, and suggest that appropriate regulatory incentives may be useful in mitigating these costs. There exists a longstanding debate on the social impact of rent-seeking by politically connected rms. The overall eect hinges to a large extent on whether political ties allow businesses to circumvent needlessly onerous bureaucratic constraints or to get around regulations that are socially benecial but result in lower rm prots. Yet there is little empirical evidence to inform our views on this tradeo. In this paper, we examine the link between rms' political ties and workplace fatalities in China, thus highlighting the cost side of this tradeo; we also examine the eect of regulator incentives in mitigating these costs. Raymond FismanThere have been many anecdotal accounts of substandard working conditions across a range of industries in China. As some indication of the scale of the problem, China's worker death rate is over 20 times that of the United Kingdom (Wang, 2011). This poor safety record is generally attributed to weak enforcement rather than the absence of adequate laws and regulations (Phillips, 2010). For example, a scathing assessment by the International Labour Organization in 2012 stated that rms in China's construction industry do not meet international standards, national laws and regulations due to a lack of prevention, illegal operations, poor preventive and protective measures, lack of provision of personal protection equipment and eective and regular safety inspections, audits and training.1 Bribery is often implicated in cases of poor safety compliance: following an explosion at a Nanjing chemical factory that killed 12 workers, the Wall Street Journal suggested that corruption and collusion between...factory owners and local inspectors limit the likelihood that laws protecting workers will be enforced. This view is echoed by statements from the national ministry charged with production safety, whose spokesman stated as recent...

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Section: Raymond Fismanmentioning

confidence: 99%

“…For connected rms, we rst consider the case where the audit cost a c for connected rms is such that a c ≥ p(2 − p)D : this leads to a corner solution where connected rms shirk and unconnected rms are in a mixed strategy equilibrium with audit probability and shirking rate dened by (3) and (4).…”

Section: Theoretical Frameworkmentioning

confidence: 99%

The Mortality Cost of Political Connections

Fisman¹,

Wang²

2015

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“…The less developed countries of the world have a greater prevalence of corruption (Bai et al 2013). Numerous studies have explored how extractive institutions are related to corruption and hinder economic development (Acemoglu et al 2005;Mauro 1995).…”

Section: Introductionmentioning

confidence: 99%

Does corruption affect cooperation? A laboratory experiment

Campos-Vázquez

Mejía

2016

Lat Am Econ Rev

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In this paper, we analyze the nature of cooperation in different corruption regimes. In a laboratory experiment with university students in Mexico, individuals play first a corruption game and then a public goods game. The corruption game is divided into three groups: high-and low-monitoring scenarios as well as a control group not exposed to the game. The public goods game is divided into three groups: the standard game, a game with centralized punishment executed by an exogenously assigned leader, and a game similar to the second one, but adding the possibility of counter-punishment. There are four key results. First, there is more corruption in the low-monitoring group. Second, in the public goods game there is less cooperation in the low-monitoring group than in the group with more intensive monitoring. Third, the option of punishment increases cooperation, but the sensitivity to punishment is greater in the high-monitoring (low-corruption) group. Fourth, the option of counter-punishment of the leader decreases cooperation. Our results highlight the importance of corruption in decreasing trust and social capital and show the difficulty of promoting cooperation when corruption is prevalent.

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“…Mauro's (1995) cross-country analysis of corruption and growth was the first of many studies over the past couple of decades to explore the correlates of corruption empirically (see Fisman and Svensson (2007) and Bai et al (2013) for within-country analyses). This literature has often used the political connections of businesses -the measure we employ in this paper -as a marker for favorable treatment by government officials.…”

mentioning

confidence: 99%

The Mortality Cost of Political Connections

Fisman

Wang

2015

Review of Economic Studies

243

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We study the relationship between the political connections of Chinese firms and workplace fatalities. The worker death rate for connected companies is five times that of unconnected firms; this result also holds when we exploit executive turnover to generate within-firm estimates. The connections-mortality relationship is attenuated in provinces where officials' promotion is contingent on meeting safety quotas. Fatal accidents produce negative returns at connected companies and are associated with the subsequent departure of well-connected executives. Our findings emphasize the social costs, as well as the firm-level benefits, of political connections. 1There exists a longstanding debate on the social impact of corruption. The effects hinge to some degree on whether political ties allow businesses to circumvent onerous bureaucratic constraints or force them to comply with regulations that are socially beneficial but result in lower firm profits. Yet there is little empirical evidence on the costs and benefits of corruption. In this paper, we examine the role of corruption in workplace fatalities in China, thus highlighting the cost side of this tradeoff.There have been many journalistic accounts of substandard working conditions in Chinese industries ranging from electronics component production (as with the recent exposé of Apple's supplier Foxconn) to the coal industry, which is responsible for thousands of mining deaths each year. In 2003, the worker mortality rate per ton of coal extracted in Chinese mines was 100 times higher than that of American mines and thirty times higher than that of South African mines, which plausibly have similar labor conditions.1 Media reports suggest that corruption -i.e., business-government ties for the benefit of corporate profits, contribute to the high mortality rate of Chinese coal miners. In 2005, the national minister of production safety, Li Yizhong, directly attributed the sector's poor safety record to corruption, saying, "Corruption is one major reason why accidents happen again and again. . . It is high time that we took a careful look at connections between local coal mine owners, local officials and the safety watchdog. These links have set up barriers against strict safety supervision." 2 Others have taken the contrary view -politicians plausibly put more weight on worker welfare relative to profits than businessmen, so that political ties could lead to higher worker safety at politically connected firms.In this paper, we present three sets of empirical results that help to shed light on the link between political connections and workplace safety. First, we document a positive relationship between political connections and worker mortality; second, we study how this relationship is affected by performance incentives for safety regulators; finally, we examine the implications of worker deaths for expected firm profits and in particular, how the impact on a firm's share price depends on its political ties.We begin by showing a robust positive correlation ...

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Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam

Cited by 76 publications

References 63 publications

The Mortality Cost of Political Connections

The Mortality Cost of Political Connections

Does corruption affect cooperation? A laboratory experiment

The Mortality Cost of Political Connections

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