We gratefully acknowledge advice from two referees, Christopher Bliss, Robert MacCulloch, John Muellbauer, Gorman workshop participants at Nuffield College, Oxford and, especially, from Susan Rose-Ackerman.
NATIONAL CHAMPIONS AND CORRUPTION: SOME UNPLEASANT INTERVENTIONIST ARITHMETIC*
Article first published online: 27 JAN 2012
Royal Economic Society 1997
The Economic Journal
Volume 107, Issue 443, pages 1023–1042, July 1997
How to Cite
Ades, A. and Tella, R. D. (1997), NATIONAL CHAMPIONS AND CORRUPTION: SOME UNPLEASANT INTERVENTIONIST ARITHMETIC. The Economic Journal, 107: 1023–1042. doi: 10.1111/j.1468-0297.1997.tb00005.x
- Issue published online: 27 JAN 2012
- Article first published online: 27 JAN 2012
- Date of receipt of final typescript: August 1996
We present a hold-up model of investment where active industrial policy promotes both corruption and investment. Since corruption deters investment, the effect of industrial policy on investment is lower than when corruption is absent. We find evidence suggesting that corruption is indeed higher in countries pursuing active industrial policies. Policy implications are illustrated by decomposing the total effect of industrial policy into a positive, direct effect, and a negative, corruption-induced effect. In the presence of corruption, the total effect of industrial policy on investment ranges between 84 and 56% of the direct impact. The magnitude of these corrections suggests that corruption considerations should not be absent from cost-benefit analyses of industrial policies.