Measurements, Determinants and Causes of Corruption: Lessons from China's Anti-Corruption Campaign

Corruption is a widespread phenomenon in many developing and transitional economies. China is a country in profile both in the prevalence of corruption, and in its attempts to root out corruption. The recent anti-corruption campaign in China, which started in December of 2012 when President Xi Jinping took power, is unprecedented in its magnitude and time length. It has had lasting impact on the functioning of the Chinese bureaucracy, and on the behavior of firms and consumers. It also provides unusual amount of data to study the causes and consequences of corruption, which will have implications for other countries and economies. In this review I discuss the definition and measurement of corruption with a particular focus on the measurements that highlight the city-level heterogeneity of corruption in China, and present simple frameworks to understand the determinants of corruption by government officials and the causes and consequences of corruption and anti-corruption. I summarize the key findings regarding how the anti-corruption campaign affects the behavior of a host of decisions makers in the economy, including firms and bureaucrats, and on the resource allocation in general, and argue that the lessons from China's anti-corruption campaign are useful to other developing countries.