Regulation and corruption in transitional China

This paper addresses the relationship between institutional change, regulation, and corruption by examining two possible positive effects of government discretion on growth in transitional economies, such as China. Firstly, economic reform depends on the support of those who have economic power. Allowing government departments and officials to divert resources and to be involved in private businesses make them a driving force for reform by giving up some of their power to the market. Secondly, because there existed large amounts of inefficient or out-of-date regulations in transitional economies, certain types of government discretion can actually circumvent inefficient policies and regulations and thus support growth. They enable people to break the status quo when regulations are lagging behind the reform. Although China had many laws and regulations which did not particularly promote growth, positive effects of government discretionary behaviour may have offset the negative effects of these laws and regulations on growth.