Revised In our presentation, our main idea is that corruption lowers Efficiency, and in the long –run, corruption will slower economic growth. From our presentation and the professor notes, we all concluded that the corruption is an inversed relationship between corruption and economic growth, but there is no strong evidence about the clear relationship between corruption and economic growth.

Revised Actually, in current China, there is no strong evidence that corruption in China is hurting the efficiency of the economy Thus, there is a better way to say “corruption in China, which means that there is have an “alternative” interpretation of the corruption.

Revised What looks like ‘corruption’ in the eyes of foreigners or those with different cultural background may not be corruption at all ? We may think of a kind of ‘Second Best Theory’: in an economy with distortion (in the economic system), one more distortion can improve ( instead of worsening) the efficiency of resource allocation. See the details at the Professor’s comments

Revised on FDI Although we introduced that the corruption could decrease FDI in China, In some views, Corruption may not lead to a decrease in FDI by foreign companies. On the professor comment, it said that Jeep auto Company eventually gave up its investment in China due to the culture differences ( including the corruption)

Revised However, every international businessmen could adapt to any business environment in order to maximize their profits. Especially, in some companies, those who have a well-understanding of Chinese culture and traditions might want to move their market to Chinese market. There is a typical example on the comment,which the professor mentioned on the PPT comment.

Question 1 (Easy) What is the corruption? What are the common characteristics of Countries with a high corruption? Corruption: The abuse of public power, office, or resources by government officials or employees for personal gain, e.g. by extortion, soliciting or offering bribes (see ppt 3) Common Characteristics: * all of the countries with a high corruption are developing or transition countries such as Indonesia and Russia.( ppt 46, Corruption Index) * Many are governed, or have been governed, and socialist governments such as China * Low income level( lower per capital and education) *Most corrupt economies are considered closed economies *Poor government regulation (poor rule of the law) see ppt 38-40

Question 2 (Medium) Do Higher Wages for Bureaucrats reduce corruption? Yes, it helps to reduce corruption Aid donors and international organizations regularly recommend fighting corruption by paying higher wages to public servants. ( 高薪養廉） Wage incentives can reduce bribery, but only under a certain condition ( the effectiveness of anticorruption wage polices rely on the existence of an honest third party that can monitor the agent, failed in developing countries, due to the lack third-party) Paying high wages maximizes tax revenues only when the share of dishonest employees available to the government is high and the monitoring apparatus is effective Thus, in many poor developing countries, where corruption is institutionalized, these requirements appear unlikely to hold.

Question 3(difficulty) Does corruption adversely affect growth in China? This finding seems to lead to a puzzle ( negative impact or positive impact) In most theories that link corruption to slower economic growth, the corrupt action by itself does not impose the largest social cost. the primary social losses of corruption come from propping up of inefficient firms and the allocation of talent, technology and capital away from their socially most productive uses When profits or potential profits are taken away from firms through corruption, entrepreneurs choose not to start firms or to expand less rapidly. Corruption also affects the allocation of entrepreneurial skills. When corruption is widespread and institutionalized, some firms may devote resources to obtaining valuable licenses and preferential market access, while others focus on improving productivity Social capital loss, due to the corrupt officials run away from China (see PPT 42) Or using the “funnel” economy to sovle this question( see ppt 41)

However, it is also a positive influence! Corruption could conceivably have a positive effect on economic growth. The proponents of “efficient corruption” claim that bribery may allow firms to get things done in an economy plagued by bureaucratic hold-ups and bad, rigid laws A system built on bribery for allocating licenses and government contracts may lead to an outcome in which the most efficient firms will be able to afford to pay the highest bribes But, these arguments typically take the distortions circumvented by the corrupt actions as given corrupt officials may not circumvent distortions, but instead actually cause greater administrative delays to attract more bribes.