Dec 5, 2012

Corruption: China and the U.S. Compared

This paper compares corruption in China over the past 15 years with corruption in the U.S. between 1870 and 1930, periods that are roughly comparable in terms of real income per capita. Corruption indicators for both countries and both periods are constructed by tracking corruption news in prominent U.S. newspapers. Several robustness checks confirm the reliability of the constructed corruption indices for both countries. The comparison indicates that corruption in the U.S. in the early 1870s — when it’s real income per capita was about $2,800 (in 2005 dollars) — was 7 to 9 times higher than China’s corruption level in 1996, the corresponding year in terms of income per capita. By the time the U.S. reached $7,500 in 1928 — approximately equivalent to China’s real income per capita in 2009 — corruption was similar in both countries. The findings imply that, while corruption in China is an issue that merits attention, it is not at alarmingly high levels, compared to the U.S. historical experience. The paper further argues that the corruption and development experiences of both the U.S. and China appear to be consistent with the “life-cycle” theory of corruption — rising at the early stages of development, and declining after modernization has taken place. Hence, as China continues its development process, corruption will likely decline.
That is the abstract of a new paper by Carlos Ramirez, who was my professor of macro at GMU. The name of the paper is "Is Corruption in China 'Out of Control'? A Comparison with the U.S. In Historical Perspective."
Carlos concludes:
As a corollary, the results also suggest that, despite experiencing high levels of corruption, countries can still grow and develop. If corruption has a negative effect on growth, as the modern literature generally finds, its magnitude does not seem to be exorbitantly high, at least for some countries during their early levels of development.
Interesting question and very creative research approach!  

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