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BPEA Article

Local Corruption and Global Capital Flows

Abstract

THE RESEARCH REPORTED in this paper was inspired by a plane ride I took
from China to the United States in 1996. Browsing the newspapers and
in-flight magazines, I came across one story about the high level of official
corruption in China, and another that extolled the extraordinarily large
flow of foreign direct investment (FDI) into China that year.1 Later in the
flight, I struck up a conversation with the passenger sitting next to me, an
American business executive who had just visited his joint venture firm
in China. I asked him whether the corruption problem in China affected
him and his business. He said that it did and went on to explain the myriad
problems that his firm had encountered in dealing with corruption and
bureaucratic red tape.

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