China’s economic development in the last 40-years has progressed hand in hand with a high degree of corruption. This has led some to suggest that corruption may be a good thing. Perhaps it has a lubricating effect?
Xiangyu Shi of the Yale University attempts to see if there’s a relationship between innovation, the lifeblood of economic growth, and corruption. If the lubricant argument is valid you’d expect to see a positive correlation; but there isn’t one. The relationship is, in fact, negative. Corruption stifles innovation.
Moreover, via some impressive statistical grinding the paper attempts to quantify the net welfare dis-benefit of this sub-optimal outcome to society.
The key points from the work are briefly as follows:
- Corruption reduces the number of firm patent grants
- It increases the entry number of firms and reduces their exit in given markets. Bad outcomes for fitter competition in the same space
- The higher the education level of the local officials caught out for shabby dealing the more corrosive their effect
- The less promotion prospects (i.e. the older they are) an official has the more likely they are to be corrupt
- The effects are larger for larger firms. Perhaps because they offer richer pickings to begin with?
- The effects are larger for private firms. Perhaps because these firms lack natural patronage and are more inclined to corrupt practices?
- Following the introduction of the anti-corruption campaigns in 2012 there has been a marked improvement in the situation
Partisans will always find ways to justify shabby practices and it’s disappointing we need research to ‘prove’ a morally repugnant practice is a bad thing.
Kudos therefore to the author of this work for adding a powerful argument to those already available that the rooting out of this problem would be to China Inc.’s ultimate benefit.
You can access the paper in full via the following link Corruption and Innovation.
Happy Sunday.