Can Corruption Facilitate Industrial Structure Upgrade in China? The Moderating Role of Government-Business Relationships

Abstract

The literature on corruption is extensive. However, specific effects of corruption on industrial structure upgrade have received little attention in the context of China. Therefore, following the concept of organizational performance and social capital theory, a number of panel models are developed to explore how different institution domains (i.e., government’s willingness to reform, business ownership structure, and government-business collusion) moderate the effect size of corruption on upgrading the industrial structure in China. The results are generally robust after endogeneity corrections, and suggest that the effect size of corruption on the industrial structure upgrade is evidently moderated by willingness to reform and ownership structure, but government-business collusion does not appear to have a similar effect. These findings explain the variation in the corruption-performance link, and provide a novel perspective for policy makers and regulators to understand the evolutionary path of corruption within the process of economic transition in China. A local government must thoroughly understand the dynamics of an industrial structure upgrade and acquire competencies and knowledge about when the effect of corruption reaches its inflection point and how its downside can be alleviated by placing specific formal and informal institutional reforms.