Abstract
This paper investigates the interaction of foreign direct investment, economic growth and political capacity on corruption in China. We use aggregated data from 1998 – 2007 and construct a profile for each sub-national province in China. This paper contributes to the existing political economy literature and applies expected utility modeling and estimation. The governance system provides institutions with political monopoly in which agents rent-seek. We develop a model of rent-seeking and test estimated effects of variable components along with interactions on corruption. The results highlight the provincial and regional differences across China as well as the peculiar nature of corruption on this rising star of the international system. The conclusion is consistent with the current policy action by the central Chinese authorities to minimize-rent seeking behavior as the effects are shown to be highly negative to long-run social welfare.
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