Corruption and social interaction: Evidence from China

To theoretically and empirically explore whether social interaction, either local and global, influences the incidence of corruption, we first present an interaction-based model which predicts that the level of corruption is positively associated with social interaction. We then empirically verify this theoretical prediction using within-country evidence at the province-level in China from 1998 to 2007. The panel data evidence clearly indicates that social interaction has a statistically significantly positive effect on the corruption rate in China. Our findings therefore underscore the relevance of social interaction in understanding corruption and point to important policy implications.