Faculty Sponsor: Xiaoxue Zhao
Flora (Panzhi) Gu
Flora Gu is a rising senior (’24) from Shanghai and a graduate of the Shanghai World Foreign Language Academy. She majors in Economics and History while pursuing a Data Analysis minor. She is an active member of the Chinese music ensemble at Wesleyan and enjoys adapting and performing popular music. She is currently studying game theory, inequality in developing countries, and labor market segmentation. In the future, she plans to pursue a Ph.D. in labor economics or development economics.
Abstract: While much existing literature has found some evidence to support the existence of corruption in China, empirically proving the influence of corruption is particularly hard due to its covert nature. This project intends to empirically examine how corrupt informal favors between local governments and firms influence the allocation of government procurement contracts in China. We measure the extent of corruption by the political connection of the contracting firm and the price that local governments pay on their procurement items. Among all kinds of procurement methods, open bidding is the most competitive and most unlikely for corruption to occur. We use the probability of the open bidding method as the explanatory variable and the higher probability stands for the lower likelihood of corruption. Taking the endogeneity issue into consideration, we adopt an instrumental variable approach. Since there exist legal thresholds that mandate procurement contracts over a certain amount to use open bidding, we use reaching the legal thresholds as an instrument and run the first stage result using a regression discontinuity design. The first stage RD result shows that reaching legal thresholds significantly increases the possibility of using the open bidding method.
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