The impacts of corruption on wage inequality and rural-urban migration in developing countries

This paper establishes three-sector general equilibrium models and separately investigates how sector-biased corruption influences the wage rates of skilled and unskilled workers, the wage inequality, and the amount of unskilled rural-urban migrants in developing countries. Corrupt activities are introduced in our theoretical models as transaction costs. We find that the reductions in different sector-biased corrupt behaviors exert different impacts through various economic mechanisms. In addition, the change in urban unskilled unemployment due to the decrease in the degree of sector-biased corruption is also taken into account.