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Political Turnover and Economic Performance: The Incentive Role of Personnel Control in China

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Abstract

In this paper, we provide empirical evidence on the incentive role of personnel control in post-reform China. Employing the turnover data of top provincial leaders in China between 1979 and 1995, we find that the likelihood of promotion of provincial leaders increases with their economic performance, while the likelihood of termination decreases with their economic performance. This finding is robust to various sensitivity tests. We also find that the turnover of provincial leaders is more sensitive to their average performance over their tenure than to their annual performance. We interpret these empirical findings as evidence that China uses personnel control to induce desirable economic outcomes. Our study adds some basic evidence to a growing theoretical literature emphasizing the role of political incentives of government officials in promoting local economic growth.

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... Under the background of scal revenue exceeding income, local governments make use of their monopoly position in land supply to transfer land to obtain nancial support for infrastructure development (Wu et al., 2015). At the same time, under the in uence of local governments' pursuit of GDP and o cial promotion, urban land supply policies tend to favor short-term economic goals, which leads to structural differences between industrial land and commercial land due to the lack of scienti c planning (Li and Zhou, 2005;Li et al., 2019). On the other hand, according to the investigation report of the Asian Development Bank on China's environmental problems during the "12th Five-Year Plan" period, 99% of the 500 cities in China could not meet the air quality standard de ned by the World Health Organization, and 7 of the 10 cities with the most serious air pollution in the world were in China (Zhang and Crooks, 2012). ...
... Speci cally, the scal spending decisions of local governments are themselves in uenced by the political incentives they face. Under the decentralization system of China's "o cial promotion tournament" (Li and Zhou, 2005), local government o cials have a scal expenditure bias that emphasizes productive expenditures and ignores innovative expenditures in order to maximize their economic and political interests during their term of o ce. While the administrative allocation of land resources provides an important tool for local governments to implement such biased expenditures. ...
... In addition, pressure to promote o cials has led local governments to favor investment in infrastructure projects over innovative projects with short outcomes and long cycles. This is because infrastructure projects not only meet the needs of local economic development, but also bring beautiful economic growth gures for the year (Li and Zhou, 2005). Thus, land misallocation limits technological innovation, which in turn hinders local investment in environmental governance technology innovation and increases urban air pollution. ...
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As a fundamental production factor for economic development, rational land allocation is not only relevant to economic development but also an important factor affecting urban air pollution. In this paper, 284 cities in China were selected as samples to analyze the impact of land resource misallocation on air pollution and the underlying mechanisms. The findings are as follows: First, land resources misallocation increases urban air pollution. Second, land resources misallocation inhibits technological innovation, government technology investment and foreign direct investment, thereby increasing local air pollution. Third, the impact of land resources misallocation on air pollution is affected by heterogeneous conditions such as geographic region, city type, and city size. Finally, based on the air pollution caused by land resources misallocation, local governments should not only optimize the land supply structure but also improve the environment for technological innovation and investment.
... A growing body of literature examines how performance is rewarded in authoritarian contexts, especially in single-party states where clear promotional ladders make performance criteria credible (Magaloni, 2006). Many of these studies use the empirical case of China, where economic performance, together with a number of other measures, are found to be highly correlated with promotion to higher office (Li and Zhou, 2005;Landry et al., 2017). Existing studies (Guo, 2009;Cao et al., 2019;Chen and Zhang, 2021) provide a variety of "outcome tests" that identify outcome measures that lead to promotion, but they do not address the policy-making process of local politicians, especially when the outcomes of policy decisions by these politicians are not entirely certain ex ante. ...
... These provincial leaders are regularly rotated across positions. Political turnover and promotions are often linked with economic performance and patronage ties in China (Li and Zhou, 2005;Jiang, 2018). ...
... We do not suggest that political rotation is an exogenous event. It is well documented that local economic performance and patronage ties explain political turnover in China (Li and Zhou, 2005;Jiang, 2018). We also do not rule out the possibility that a few well-connected firms could be informed about provincial leadership changes, but we do not expect many firms to be We multiply this subsidy amount as a percentage of total assets measure by 100 for easier interpretation. ...
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How do politicians distribute government resources in regimes with no electoral considerations? We propose that new politicians minimize political risks by favoring politically important actors: state-owned enterprises (SOEs), but they adjust their behavior as they establish personal ties with private businesses. Using firm-level subsidies data after the 2008 stimulus in China, we find that new provincial governors, immediately after taking office, distribute a significantly larger proportion of subsidies to SOEs relative to private firms. The effect attenuates as new governors learn about local conditions and establish connections with private firms. We find suggestive evidence that governors who adopt such a strategy are more likely to be promoted. Contrary to conventional wisdom that the state always favors state-owned firms, we show that SOEs benefit from the stimulus package only in the short-run.
... Although a large body of literature has touted the EKC hypothesis and regarded it as an established fact [1], it remains controversial whether the inverted U-shaped income-pollution nexus exists in China, and if it does, when and how the country can reach the threshold of the EKC [2][3][4]. One factor leading to this controversy is an ignorance of the potential impacts of spatial dependence in pollutant emissions among localities--impacts that can arise from the strategic interactions among local governments regarding how to balance the enforcement of top-down environmental policies with traditional promotion-oriented intergovernmental competition (IGC) [5][6][7]. ...
... Under the environmental TRS, the central government established general goals for environment performance indicators and allocates subgoals to local governments at all levels [8]. On the other hand, because of the complexity in assessing environmental improvements, a type of performance-ranking tournament is applied to punish those who present poor environmental performance, and it functions as a complement to the traditional economic-oriented, absolute performance-based promotion tournament mech-anism [6]. Consequently, under the ecologically transformed IGC pattern, local officials strategically tailor their enforcement of environmental regulations to balance and align their own regulatory performance with that of other competitors [9], especially in localities with similar economic levels, among which there is fierce competition for political promotion [6,23]. ...
... On the other hand, because of the complexity in assessing environmental improvements, a type of performance-ranking tournament is applied to punish those who present poor environmental performance, and it functions as a complement to the traditional economic-oriented, absolute performance-based promotion tournament mech-anism [6]. Consequently, under the ecologically transformed IGC pattern, local officials strategically tailor their enforcement of environmental regulations to balance and align their own regulatory performance with that of other competitors [9], especially in localities with similar economic levels, among which there is fierce competition for political promotion [6,23]. ...
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Since China’s central authority began enforcing the environmental target responsibility system and introduced environmental indicators to the official ranking tournament in 2007, an ecological transformation has emerged in the intergovernmental competition (IGC) among localities. Because the extant literature on the environmental Kuznets curve (EKC) remains unclear regarding how that ecological IGC transformation changes the EKC economy–pollution correlation, this research investigates the degree to which the transformed IGC changes the form of the EKC, and how that altered EKC varies for different pollutants (i.e., SO2 and CO2) and in different regions (i.e., the eastern, central, and western regions). The results demonstrate a consistently inverted U-shaped relationship between income and SO2 emissions in all three regions, whereas when CO2 emissions are taken as the pollution indicator, the EKC hypothesis holds only in the eastern and central cities, and a positive linear income–CO2 nexus is found in the western region. Spatial analysis reveals that whereas the IGC flattens the inverted U-shaped curves between income and SO2 emissions, it has led to a higher economic cost, corresponding to the turning point of the EKC for CO2 emissions. The findings indicate that the ecological transformation of the IGC has facilitated a positive up–down yardstick competition in the strategic interactions of sustainable development across local Chinese governments, which can lead to a kind of balance between centralization and decentralization by inspiring local officials’ adaptability and activity in reducing pollutant emissions and strengthening the officials’ responsiveness to performance rankings. This study elucidates the environmental impacts of IGC in China and provides an institutional explanation for the strategic interactions among local governments when they are tackling the environment–economy nexus under multitask conditions.
... There are several defining characteristics of entrepreneurial governance in China, including the 1994 tax-sharing system reform (Zhang, 1999), cadre appointment system (Li and Zhou, 2005) and land property and market reform (Hsing, 2010). Each of these characteristics encourages local governments to adopt pro-growth urban development strategies to increase extra-budgetary revenue and enhance local economic and political performance. ...
... The local state in China is hence no longer a social welfare provider (He and Wu, 2005), and it often competes in initiating or testing new reform policies. Furthermore, since the market reform, the economic performance of cities became a key criterion for evaluating the suitability of local leaders for positions in upper-tier governments (Li and Zhou, 2005). This is accompanied by land and housing reforms, which allow local governments to lease land-use rights to property developers, who seek to accumulate largescale capital and profit by developing residential properties (He and Wu, 2009). ...
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The role of hospitals has significantly changed over the past decades and the ‘medical city’ has emerged as a new urban phenomenon in China. However, research on the significance of the medical city to China’s urbanism is limited. This paper situates China’s medical city in the theory of state entrepreneurialism and rethinks consumerism in healthcare. Particularly focussing on the state–market and production–consumption dyads, the paper argues that the state has engineered the institutional and market legitimacy for the rise of consumerism in healthcare and allows the medical city to capitalise on the provision and consumption of high-end healthcare services to advance the healthcare reform and capture economic opportunities. This argument is substantiated by a case study on the Shanghai New Hongqiao International Medical Center, which focusses on the public–private partnerships in the medical city. It is found that while the production of the medical city is based on private sector participation, the state’s presence is diffused in the governance of the medical city through public–private partnerships, which reflect the characteristics of state entrepreneurialism. The findings add to the theory of China’s urbanism with new sets of materials and render important implications for the urban future in China.
... Third, our paper relates to the research agenda on Chinese political meritocracy. Since Li and Zhou (2005), a large number of empirical studies have tried to investigate how the design of various performance indicators, such as fiscal revenue (Lü and Landry, 2014), environmental standards (He et al., 2020), policy experimentation (Wang and Yang, 2022), and population control (Serrato et al., 2019), can affect the behaviors of provincial and prefectural leaders in China. However, existing evidence has focused almost exclusively on high-level government officials, leaving incentives and constraints for the vast majority of local bureaucrats under-researched, even though they could differ substantially from those for highlevel leaders. ...
... Chen et al. (2005) find that the turnover of provincial leaders in China hinges on provincial economic performance relative to their immediate predecessors. Li and Zhou (2005) and Yao and Zhang (2015) study the role of China's municipal leaders in economic growth and they find that leaders have significantly different levels of abilities to promote local economic growth. Recent studies also provide empirical evidence that turnover of the local government officials can affect the level of investment (Azzimonti, 2011;Cao et al., 2016), productivity (Earle and Gehlbach, 2015), shadow economy (Elgin, 2010), and cash holdings (Xu et al., 2016). ...
... Furthermore, refer to Li and Zhou (2005), we define Turnover variable. If the officials promote between January 1st and June 30th, we set the current year as the first year and Turnover equals1 and 0 otherwise. ...
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In the context of the slowing growth of the real economy and the rapid development of the financial industry, more and more non-financial companies are participating in the financial industry for the purpose of development and profit expansion. China has gradually appeared the phenomenon of corporate financialization. This paper uses the panel fixed effect model empirically examines the effect of political turnover on corporate financialization by using data of listed companies and top prefecture level officials in China between 2007 and 2020. We find that the turnover of mayors significantly decreases corporate financialization, while the turnover of party secretaries has no impact on corporate financialization. Moreover, these results are moderated by the characteristics of government officials and firm’s characteristics. Our results further show that changes by mayors increase fixed asset investment and decrease cash holdings, and, thus, reduce corporate financialization. These findings could assist in solving the “from real to virtual” problems, strengthening financial services, and realizing high-quality economic development.
... Therefore, how can effective environmental regulation be achieved in the case of multiple systems of government? Existing research argues that the institutional arrangements of vertical administrative contracting and horizontal promotion tournaments in the Chinese government system shape the lack of effective incentives for local officials to govern the environment [5,6]. Even after the central government strengthened environmental accountability and after the "one-vote veto" of environmental governance came to directly determine the probability of the promotion of local officials, environmental improvement remained lower than expected, and the strict performance assessment indicators did not provide effective incentives for the environmental governance of local governments. ...
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In environmental authoritarian countries, environmental pollution control relies on government environmental regulation. Theoretically, the certainty and severity of environmental regulation are the key factors in achieving its political goals. According to regulatory space theory, an effective regulatory system needs regulatory power and resources. However, the effectiveness of regulation may be decreased by the desperate need for resources, and the regulated enterprises can also affect environmental regulation through their information advantage and social networks. This paper focuses on how local environmental regulation can be achieved under these conditions. The analysis is conducted from two perspectives: the deterrence effect of punishment and the political connections maintained by enterprises. An empirical test was conducted by analyzing the research data from the 12th China Private Enterprise Survey in 2016. The study found that the severity of punishment is a mediator of environmental regulation in the promotion of enterprises’ investment in pollution control, and that it is moderated by the political relationships of enterprise managers. Compared with counterparts that have a less substantial political network, enterprises with more political networks may feel more pressure from environmental regulation policies, which leads to higher pollution fines. However, the promotion effect of environmental fines on an enterprise’s investment in pollution control is weakened due to its political relationships, thus weakening the effectiveness of the punishment. This paper clarifies the mechanism through which political connections weaken the effect of environmental regulation: political connections encourage firms to avoid real harm and do false good. Regulation is supposed to use fines as an incentive to improve the environment, but politically connected companies are more willing to pay fines (doing false good), than to invest in cleaning up pollution (avoiding real harm).
... Chen et al. (2005) find that the turnover of provincial leaders in China hinges on provincial economic performance relative to their immediate predecessors. Li and Zhou (2005) and Yao and Zhang (2015) study the role of China's municipal leaders in economic growth and they find that leaders have significantly different levels of abilities to promote local economic growth. Recent studies also provide empirical evidence that turnover of the local government officials can affect the level of investment (Azzimonti, 2011;Cao et al., 2016), productivity (Earle and Gehlbach, 2015), shadow economy (Elgin, 2010), and cash holdings (Xu et al., 2016). ...
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Purpose The political influence on the determinants of capital structure has been under-researched for a long time. Taking the turnover of secretary of municipal committee as a political factor in China, this paper studies the effect of local government officials' turnover on firm's capital structure. Design/methodology/approach Starting with all A-shares listed firms in the Shanghai and Shenzhen Stock Exchanges from 2001 to 2018, this paper implements the OLS estimation, staggered difference-in-difference approach to investigate the effects of political turnover on the choice of capital structure. Findings The results show that, driven by government officials' turnover, firms will significantly reduce their leverage. When comparing between formal finance (bank loans) and informal finance (payables), the reduction of capital structure is mainly driven by banks, not by suppliers. Furthermore, two possible channels have been investigated. First, the reduction effects are mainly driven by the SOEs when classifying the types of corporate ownership into SOEs and non-SOEs. Second, the reduction effects exist in areas with the more intense government intervention when considering the heterogeneity of the development of institutional environment in provinces. Originality/value This paper first contributes to the literature on the determinants of corporate choice on capital structure. Second, this paper enriches the studies on the economic consequences of local government officials' turnover.
... Especially after the reform of the tax-sharing system, the promotion of local officials is more significantly affected by the level of economic development, forming the "promotion tournaments" with Chinese characteristics that take economic performance as an indicator (3). "Promotion tournaments" lead local government officials to lower tax rates and relax environmental regulation standards in order to attract investment (4). Whether the local government is willing to develop a high-quality economy and how to develop a high-quality economy are not only affected by its willingness to govern the environment, but also affected by its tax policies to promote economic development. ...
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Studying economic development in China is a very important topic recently because China's economy is moving toward high-quality development and local governments face the dilemma of environmental governance and economic development. To contribute to the literature in this area further, this paper assesses the impact of tax competition and environmental regulation on high-quality economic development through the spatial Durbin model and instrumental variable and by using the data from 278 prefecture-level and above cities from 2007 to 2017 in China. Our empirical analysis shows that tax competition inhibits high-quality economic development and a positive spatial spillover effect, environmental regulation has a significant direct promoting effect on high-quality economic development and a negative spatial spillover effect, and local government tax competition inhibits the promotion effect of environmental regulation on high-quality economic development. Further heterogeneity analysis conducted in our study shows that both the direct and spatial spillover effects of tax competition and environmental regulation on high-quality economic development in large and medium-sized cities are significantly lower than those in small cities. Our empirical analysis infers that since the 18th National Congress of the Communist Party of China, the promotion effect of environmental regulation on high-quality economic development and the synergistic effect with tax competition has become more and more significant. The findings in our paper are useful for both the central government and the local governments in making better decisions for economic development in China as well as in other countries.
... However, it is also important to note that rms are not completely passive in this process, but have some subjective initiative. Firms will pursue different goals and interests and make contingency strategic decisions depending on the state of the institutional environment ( Under China's scally decentralized governance system, local governing o cials (mayors and municipal party secretaries) hold the key power to formulate economic policies within their jurisdictions, and due to differences in personal experiences and governing philosophies, there is a large heterogeneity in each o cial's tendencies in policy formulation, resulting in a clear individualism in regional economic policies (Li & Zhou, 2005;Zhong et al., 2019). Therefore, when local governing o cials turnover, the economic policies in the jurisdiction will also change, leading to the disruption of the original policies. ...
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In recent years, environmental, social, governance (ESG) have gradually received widespread attention. However, few studies have focused on the impact of situational factors on corporate ESG practice decisions. Based on this, this paper analyzes a sample of 9428 observations of Chinese A-share listed firms during the period 2009-2019 in an attempt to explore the impact of local officials' turnover on corporate ESG practices, and analyze the boundary effects of this impact at three levels: regional, industry, and corporate. Our results suggest that: (1) Turnover of local officials can lead to changes in economic policies and reallocation of political resources, which can stimulate companies' "risk aversion motive" and "development motive" and thus promote their ESG practices; (2) This effect will be enhanced by the high level of government intervention, the high level of competition in the industry, and the private sector. (3) Further test finds that turnover of local officials can have a significant impact on corporate ESG only when the officials are abnormal turnover and when the regional economic development is good in the current period. This paper enriches research related to decision-making scenarios of corporate ESG practices from a macro-institutional perspective.
... For one hand, the rigid household registration system in China restricts the migrations for a long time, blocking the theoretical efficient mechanism of "voting by feet". For another hand, the bureaucratic promotions are found to be closely tied to local GDP growth, which aggravate the local's expenditure preference (Maskin et al., 2000;Li and Zhou, 2005;Besley, 2005;Jia et al., 2015). These characteristics all contribute to the insufficient provision of public goods, which may in turn lead to limited public investment in human capital. ...
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Intergenerational income mobility has been widely concerned focusing mainly on the transmission mechanism within families. This paper turns to explore the structural determinants and pays special attentions to the role of intergovernmental transfer. Since the fiscal decentralization in 1990s, intergovernmental transfers become an increasingly critical part in Chinese fiscal system, balancing the fiscal capacities across regions and promoting the equalization of public goods. The question arises naturally as whether transfers targeting at equalization can boost intergenerational mobility. However, little work has investigated this intersection of studies and seldom is known about this question. This paper tries to shed some new lights. Through investigations, it confirms that intergovernmental transfers weaken the income persistence and the effect is especially significant for urban areas; the effects for the rural are mixed. Further explorations indicate that the special-purpose transfer payment has greater effects when measured during college period; notably, entering college may bring the rural children fundamental changes relative to other levels of education. In conclusion, the intergovernmental transfer system is relatively more pro-urban. To better fulfill the equalizing effect of the intergovernmental transfers on both static inequality across regions and dynamic inequality across generations, should the transfers be re-framed with cautions tilting more towards the rural.Meanwhile, the competitive behaviors and (dis)incentives of the local governments should also be taken into accounts.
... Since local governments can mobilize both capital and land resources more easily than before, they have adopted pro-growth strategies that harness megaprojects to spur the local economy and improve city image (Shen & Wu, 2020;Xu & Yeh, 2005). The literature on GDP-ism reveals that local officials, who are appointed cadres, are most concerned about GDP growth and their political career advancement in the context of political decentralization and upward accountability reform (Chien, 2010;Eaton & Kostka, 2013;Li & Zhou, 2005). Local cadres are assessed based on economic performance, alongside environmental and social achievements during their terms in office (de Jong, 2019;Gao, 2015). ...
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In the last three decades, China has taken actions to tackle its environmental issues while the tension between policymakers at the central level and decentralized implementation of such policies has been a major concern. This study investigates how policy clarity and high powered incentive system jointly affect organizational performance in the context of environmental governance in China. Utilizing city‐level data compiled with text data extracted from Report on the Work of the Government from 2004 to 2015 and Difference in Differences (DID) design, we find that the compliance of local officials to protect the environment as well as the actual environmental protection outcome significantly increased. Our study also finds evidence that newly‐appointed Party Secretaries at the city level are the main facilitators of enhancing environmental regulation policies. This research proposes a two by two typology based on the principal‐agent theory explaining how successful environmental governance within this period in China is realized and offers practical implications for those who seek to enhance the effectiveness of environmental governance. 本研究探究了中国环境治理情境下,政策清晰(policy clarity)和强有力的激励体系如何共同影响组织绩效。通过将2004‐2015年政府工作报告中提取的文本数据整理为城市级数据,并使用双重差分(DID)模型设计,我们发现,地方官员在保护环境方面的合规性以及实际的环境保护结果显著增加。我们的研究还发现,新任命的市级党委书记是加强政策实施的主要推动者。基于政策清晰和官僚晋升激励,本文提出了一项基于委托代理理论的四种分类(懒政、形式主义、合谋实施以及有效实施),并解释了这一时期中国环境治理的成功是如何实现的。本文为那些寻求提高环境治理有效性的人士提供了实际意义。 Este estudio investiga cómo la claridad de las políticas y el sistema de incentivos de alto poder afectan conjuntamente el desempeño organizacional en el contexto de la gobernanza ambiental en China. Utilizando datos a nivel de ciudad compilados con datos de texto extraídos del Informe sobre el trabajo del gobierno de 2004 a 2015 y el diseño Diferencia en diferencias (DID), encontramos que el cumplimiento de los funcionarios locales para proteger el medio ambiente, así como la protección ambiental real el resultado aumentó significativamente. Nuestro estudio también encuentra evidencia de que los Secretarios del Partido recién nombrados a nivel de ciudad son los principales facilitadores para mejorar la implementación de políticas. Basado en la claridad de las políticas y la preocupación por la carrera burocrática, este artículo propone una tipología de dos por dos (implementación perezosa, formalismo, implementación colusoria e implementación efectiva) basada en la teoría del agente principal, y explica cómo la gobernanza ambiental exitosa dentro de este período en China es comprendió. Este artículo ofrece implicaciones prácticas para aquellos que buscan mejorar la efectividad de la gobernanza ambiental.
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This study examines how firms have responded to the most stringent air quality regulation in China's history, known as the “Action Plan for Air Pollution Prevention and Control”. The main goal of the regulation is to improve air quality in three regions of the country. Based on an analysis of a large sample of manufacturers, our findings show that, the Action Plan caused those regulated firms with high emission intensity to decrease waste gas emissions. Meanwhile, with the regulation in place, the firms' output did not decrease, implying that the scale effect was not a driving force behind the emission reduction. Further analysis suggests that the reduction was likely driven by the regulation's technique effect via substituting non-energy materials and intermediates for coal.
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As a country rich in mineral resources, contemporary China remains surprisingly overlooked in the research about the much debated 'resource curse'. This is the first full-length study to examine the distinctive effects of mineral resources on the state, capital and labour and their interrelations in China. Jing Vivian Zhan draws on a wealth of empirical evidence, both qualitative and quantitative. Taking a subnational approach, she zooms in on local situations and demonstrates how mineral resources affect local governance and economic as well as human development. Characterizing mining industries as pro-capital and anti-labour, this study also highlights the redistributive roles that the state can play to redress the imbalance. It reveals the Chinese state's strategies to contain the resource curse and also pinpoints some pitfalls of the China model, which offer important policy implications for China and other resource-rich countries.
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China enacted an environmental regulation policy in 1998, the “Two Control Zones” (TCZ) policy, to control air pollution in selected cities. Using a panel dataset of 208 prefectural cities for 2001–2012, this study applies a difference-in-differences approach to examine the policy's impact on mortality and identify the role of political incentives. We find the following aspects. (1) The policy significantly reduces mortality in TCZ cities relative to that in non-TCZ cities by 0.305‰ in the period when the policy is strictly enforced. On average, it translates into a 5.2% reduction in mortality. (2) The effect is particularly salient in the years when local officers are evaluated for political promotion and/or when they face stronger pressure for promotion, thus suggesting that political incentives play an important role in determining the effectiveness of environmental regulation policy. (3) The policy reduces industrial emissions of sulfur dioxide instantaneously, while the accumulation of which eventually leads to a lagged reduction in mortality in the cities. (4) The policy yields health benefits worth 1.1 trillion yuan for the treatment period in our sample (i.e., 2006–2012), which accounts for approximately 5.1% of GDP in 2006.
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Due to uneven economic reforms, Chinese provinces have developed distinct approaches to governing that impact social policy priorities and policy implementation. Ratigan shows how coastal provinces tended to prioritize health and education, and developed a pragmatic policy style, which fostered innovation and professionalism in policy implementation. Meanwhile, inland provinces tended to prioritize targeted poverty alleviation and affordable housing, while taking a paternalist, top-down approach to implementation. This book provides a quantitative analysis of provincial social policy spending in the 2000s and qualitative case studies of provinces with divergent approaches to social policy. It highlights healthcare, but also draws on illustrative examples from poverty alleviation, education, and housing policy. By showing the importance of local actors in shaping social policy implementation, this book will appeal to scholars and advanced students of Chinese politics, comparative welfare studies, and comparative politics.
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A comprehensive, up-to-date, insightful, and innovative masterpiece on the Chinese public finance has finally emerged to fill the gap in the field. Considering China's public finance in its entirety, from tax systems, government spending, infrastructure financing, fiscal policies, local government debt, and central-local fiscal relationships to urban and rural social security and healthcare, it analyses China's public finance reforms and examines the reasons and the consequences of these reforms. It explores the challenges to China's public finance, examines its problems, and suggests potential solutions. While covering a broad range of themes, this book remains judicious with the evidence, providing its readers with innovative yet careful conclusions. Using enormous amount of the latest data and illustrative diagrams, the author explains China's public finance with expertise and clarity. This is an indispensable resource for students and scholars from a range of disciplines with an interest in the Chinese economy.
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We examine the effects of anti-corruption efforts on local environmental pollution in China. Using data for China from 2003 to 2017, we find that anti-corruption efforts contribute to reduce local environmental pollution. Second, we show the two possible channels through which the anti-corruption efforts reduce local environmental pollution: political connection effects and deterrent effects. Finally, our results show that the effects of anti-corruption efforts on local environmental pollution are stronger in cities located south of the ‘Qin ling Mountains-Huai he River’, in cities with stronger government and public concern for the environment. Our main results pass a series of robustness tests. Overall, we offer novel evidence that anti-corruption efforts contribute to improving environmental quality.
Book
This book investigates the new representation unfolding in Chinese local congresses. Drawing qualitative fieldwork and data analysis from original surveys of 5,130 township, county, and municipal congressmen and women and constituents, Melanie Manion shows the priorities and problems of ordinary Chinese significantly influence both who gets elected to local congresses and what the congresses do once elected. Candidates nominated by ordinary voters are 'good types', with qualities that signal they will reliably represent the community. By contrast, candidates nominated by the communist party are 'governing types', with qualities that reflect officially valued competence and loyalty. However, congressmen and women of both types now largely reject the Maoist-era role of state agent. Instead, they view themselves as 'delegates', responsible for advocating with local government to supply local public goods. Manion argues that representation in Chinese local congresses taps local knowledge for local governance, thereby bolstering the rule of autocrats in Beijing.
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We examine how local accountability shapes the policy choices of officials and affect local development in a one-party authoritarian country, China. We argue that county leaders from the strong faction were less likely to pursue pro-development policies because their political survival relied on loyalty to the provincial leader than on grass-root support. By contrast, the political survival of county leaders from the weak factions depended on grassroots support, which induced local accountability and facilitated better local development. In addition, a guerrilla presence in a county further improved development performance because of the natural connections between guerrilla-affiliated cadres and local population. We find supporting evidence using county-level performance in Fujian Province in China. Being from the weak faction and/or having guerrilla presence, by improving local accountability, is associated with sizable long-term benefits including economic growth, private-sector development, local population's education levels and survival rates during the Great Famine. Being with the strong faction and adopting pro-local policies are associated with higher likelihood of political survival.
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Cities in transitional economies have experienced rising mobility and the simultaneous evolution of urban governance. This paper explores the relationship between both inter-city migration and intra-city residential mobility and urban governance, especially in the Chinese city, through theoretical reasoning and synthesizing previous works. While acknowledging that inter-city migration may force cities to improve urban governance through the agglomeration economy, I argue that, by weakening wage capitalization, inter-city migration strengthens property interests in urban governance, pushing it towards the progrowth model. The same mechanism applies to intra-city mobility. Besides, rising mobility weakens social control in the Chinese city, which faces a dilemma: grassroots governments are expected to strengthen social control after the decline of work unit, but they are gradually marginalized in private gated communities that are dominant in Chinese cities. The observed downward turn of residential mobility for local residents in the 2000s and continuously rising mobility for migrants are partly due to the homeownership effect and, as I emphasized in this paper, partly due to the protection for property owners from territorial organizations and urban governance at large. • Highlights • Co-evolution of mobility and urban governance in Chinese cities. • Rising mobility strengthens rent capitalization, supporting progrowth governance. • Rising mobility weakens social control. • The rich’s lower mobility is partly due to protection from HOAs and urban governance.
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Taking the first bond defaults in each province in China as credit events, we adopt a staggered difference-in-difference model and find that credit spreads of other corporate bonds in the same province increase by 15 basis points, suggesting spillover effects. The spillover effects are stronger on local state-owned enterprises (LSOEs) and non-state-owned enterprises (Non-SOEs) than on central state-owned enterprises (CSOEs). Moreover, the defaults of LSOEs trigger the greatest spillover effects among all types of defaults. Provinces with higher guarantee capability experience fewer spillover effects. Our findings suggest intra-regional spillover effects from investors' shaken beliefs on implicit government guarantees.
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On subjects ranging from trade to democratization, there has lately been a wave of laments about China's development belying Western expectations. Yet these disappointments often come with misunderstandings of the very institutions that China was expected to adopt. Chinese taxation offers a sharp illustration. When China introduced a tax system suited for the market economy, it fully intended tax collection to rely on self-assessment, audits, and the rule of law. But this Western approach was quickly jettisoned in favour of one that emphasized monitoring of taxpayers and ex ante interventions, at the expense of deterrence and truthful reporting norms. The Chinese approach surprisingly matches recommendations made by recent economic scholarship on tax compliance and state capacity. China's massive but little-known explorations in taxation highlight the distinct types of modern state capacity, and raise challenging questions about the future of taxation and the superiority of institutions based on rule of law.
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Under the strategic background of regional coordinated development, the County to District can remove administrative barriers and reduce local protection. Based on the matching data of Chinese A-share listed companies from 2000 to 2018 and the County to District Reforms, this paper empirically explores the influence of County to District Reforms on earnings management. We find the County to District Reform can effectively reduce earnings management, especially in areas with high local protection. Further mechanism analysis shows the County to District Reforms reduce local protection by increasing credit availability for enterprises, and ultimately restrain earnings management. Additional analysis shows the County to District Reforms increase the bank loans of enterprises in areas with higher local protection. This paper deepens the understanding of the County to District Reforms and enriches the literature on how government actions can affect corporate governance.
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The adjustment of industrial structure not only is an important driving force of economic development but also affects the income gap between urban and rural areas through the effect of resource allocation. Based on this, this article constructs an index of the adjustment range and adjustment quality of the industrial structure. The results show that the adjustment of industrial structure in the eastern region has significantly promoted economic catch-up but inhibited the widening of the income gap between urban and rural areas. The adjustment range and quality of industrial structure in central China has promoted economic catch-up, but the adjustment quality has inhibited economic catch-up. In the western region, the adjustment range and quality of the industrial structure have restrained the regional economy from catching up and expanding the income gap between urban and rural areas. In the eastern and central regions, economic catch-up and the narrowing of the urban-rural income gap significantly promote each other, while in the western region, economic catch-up and the urban-rural income gap significantly promote each other. This shows that both economic development and people’s livelihood improvement can be achieved in economically developed areas but not in underdeveloped areas.
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Firms investing in environmental issues often suffer from increased operating costs and reduced profits. Therefore, rigorous environmental legislation is required to motivate firms to conduct more green innovations. This paper takes the promulgation of China's New Environmental Protection Law as an ideal quasi-natural experiment to investigate the effect of rigorous environmental legislation on corporate green innovations. By reconsolidating the “compensation effect” and the “crowding-out effect”, we find that China's New Environmental Protection Law promotes the quantity of corporate green innovations, but inhibits the quality of green innovations. The potential mechanisms regarding green innovation quantity and quality are strikingly different. China's New Environmental Protection Law promotes green innovation quantity mainly through alleviating government favoritisms and increasing the risk of environmental litigations. However, since high-quality innovations require higher investment costs and greater tolerance for failure, China's New Environmental Protection Law also tightens financing constraints and exacerbates managerial myopia, which crowds out high-quality green innovations. Moreover, China's New Environmental Protection Law causes short-term corporate performance losses, but it indeed promotes environmental performances. Our results are crucial to comprehensively understand the effectiveness of environmental legislation and provide policy inspirations for the government concerning the environment.
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Some corporate pollution behaviors raise public concern on whether local governments can strictly implement the central environmental policy to restrain heavy-polluting firms within their jurisdiction. To explain this tension, on the basis of political incentives, we discuss the effect of the political status of the city where the local government is located on the corporate pollution behaviors within the jurisdiction and consider that political status is an important factor influencing the local governments' trade-off between economic growth and environmental governance. We believe that the political status is an innate political incentive for local governments, indicating that the higher the political status is, the stronger the political incentive the local governments perceive and the more motivated they are to implement environmental policies strictly, thereby reducing corporate pollution behaviors. In addition, we propose that the promotion opportunities of local officials will further strengthen their perceived political incentives, thus reinforcing the focus relationship, whereas geographical distance between central and local governments will further weaken the implementation of local governments, thereby undermining the focus relationship. Analyses on the Chinese heavy-polluting firms listed on stock exchanges from 2008 to 2020 support these arguments. Thus, our results clarify the mechanism of political status influence on corporate pollution behaviors and contribute to the literature on political incentives.
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Review Essay of two books by Kyle Jaros and Xiao Ma. (Note the title of Kyle Jaros's book should be "China's Urban Champions: The Politics of Spatial Development".)
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This study examines whether ໿significant inconsistencies between the financial and nonfinancial measures can be used to identify stock price crash risk. We find that the greater difference between financial (e.g., revenue growth rate) and nonfinancial measures (e.g., sales volume growth rate, production volume growth rate and inventory volume growth rate), the higher stock price crash risk. The mechanism test result shows that the difference stem from corporate fraud, real activities manipulation and over-investment is the main reason for the effectiveness of non-financial measures in identifying the stock price collapse. Furthermore, we find that this positive relationship is more significant in non-state-owned enterprises, and firms with poorer information environment.
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Using several micro-datasets and the difference-in-differences (DID) method, we attempt to study the effects of labor protection on private firms’ exports. We find that labor protection has enormous negative impacts on the exports of private firms. The impacts are more pronounced in cities with higher minimum wages and in more labor-intensive firms. The mechanism analysis shows that labor protection reduces the productivity of private firms and long-term employment. The findings suggest that governments need to implement supplementary measures to reduce the negative effects of labor cost increases induced by the Labor Contract Law.
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The excessive behavior of the government is a common phenomenon in the practice of PPP projects such as transportation, municipal engineering and environmental governance. Analyzing the excessive behaviors of the government in PPP projects is very important to improve project performance and success. Based on the field dynamic theory, the demand of government and the external environment participating in PPP are the important reasons for excessive behavior. Through literature analysis, 14 government demands and 10 environmental factors that influence the government's excessive behavior are identified, and a hypothesis model of the influencing path of government's excessive behavior is constructed. 166 valid data are collected through a questionnaire survey. Carrying out factor analysis, hypothesis, and path test, the main findings are as follows: Government’s demands are divided into the demand of satisfying public activities, self-interest, responsibility, and relieving financial pressure; External environmental factors are divided into social conditions, department mechanism, and project information; The demand for responsibility plays a restraining role, while the other types of demand are opposite, and these demands play an intermediary role in the impact path of external environment on excessive behavior; Among the environmental factors, only the lack of project information has a direct influence on the government excessive behavior; In the feasibility subsidy project, the risk of excessive behavior is high, especially for transportation projects with certain toll nature. The study provides suggestions for reducing the risk of government behavior in PPP projects.
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It is necessary to reassess the pollution effects of decentralization reforms to improve the future policy design for better economic and social development in the postepidemic era. This study examines the relationship between decentralization and air pollution by exploiting the policy of County-to-City Upgrade in China from 2005 to 2018. Upgrading empowered new cities in fiscal, administrative, and economic matters without changing the political hierarchy. Under the cadre evaluation system, the new county-level city government preferred to increase construction land area and attract more polluting firms to promote economic development, and air pollution became more severe. Heterogeneity tests found that when the new city was located in eastern China or was away from the provincial boundary, decentralization would induce more severe air pollution. Overall, decentralization without a supplementary incentive rule has a negative effect on air pollution.
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As a crucial environmental reform system to realize “carbon peaking” and “carbon neutrality”, the pilot policy of low-carbon cities (LCCs) puts pressure and challenges on high-carbon emitting enterprises (HCEEs) while providing opportunities for these firms to take the path of independent transformation. Employing the data of Chinese listed enterprises from 2006 to 2016 and adopting a difference-in-differences (DID) model, we evaluated the impact of LCC construction on the upgrading of HCEEs and its mechanisms. The results indicate that LCC construction enhances the upgrading of HCEEs in the pilot cities. The conclusions remain stable after a series of robustness tests. The mechanism analysis reveals that LCC construction triggers the upgrading of HCEEs by promoting resource allocation efficiency, R&D investment, and green technology innovation. The heterogeneity results indicate that this positive effect is more pronounced for HCEEs in regions with more stringent environmental law enforcement. This study also observes that the upgrading impact is more prominent for state-owned enterprises, enterprises with higher bargaining power, and enterprises whose managers have a long-term vision. The above results provide directions for upgrading HCEEs and replicable evidence for cities in developing economies to fulfill the win–win target of environmental protection and economic transformation.
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This paper investigates the moderating effect of political turnover on the relationship between corporate misconduct and corporate philanthropy. By using panel data from Chinese listed companies, we first demonstrate a positive relationship between fraudulent firms and their philanthropic engagement. We find that when the local city is experiencing turnover of mayors, firms that engage in misconduct will donate more than usual. Our results suggest that firms have incentives to “whitewash” their potential mistakes and maintain a good relationship with the government due to the uncertainty of the political environment. In addition, for privately owned companies, the moderating effect of political turnover would be even more significant as the development of firms largely depends on “Guanxi” with the local government. Our research develops the literature on corporate misconduct by emphasizing the importance of political factors for enterprises. In engaging with how firms develop their donation strategy, it provides insights for practitioners.
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Purpose China's economy has transformed from a high-speed growth phase to a high-quality development phase. The agriculture sector has grown substantially since the economic reform in 1978. Considering the five-year plan (FYP) as a collection of policies, this study explores the relationship between the FYP and agricultural total factor productivity (TFP). Design/methodology/approach This study uses 31 provincial-level panel data of the five FYPs from 1996 to 2020. The data envelopment analysis (DEA) is used to compute Malmquist productivity indexes. The authors analyze the temporal and spatial changes and convergences of China's agricultural TFP, and investigate the impact of economic planning on China's agricultural TFP and its regional difference. Findings There is a slow but upward growth trend in China's agricultural TFP. The technical change has played a leading role in the growth of China's agricultural TFP. The agricultural TFP of all provinces has shown a “catch-up” effect and is developing toward their respective steady-state levels. The regional difference in productivity growth among the eastern, central and western regions exists. Test results show that the FYP has a positive effect on the agricultural TFP, and the effect has obvious regional heterogeneity. The FYP also plays a positive role in the gross value of agricultural output, and the impact effect is greater than that on the improvement of agricultural productivity. Originality/value There are many forms of industrial policy in China, among which the FYP is the guiding document of industrial policy, which makes a systematic plan for industrial development in the subsequent five years. The development objectives, guidelines and overall deployment for agriculture in the FYP not only describe the general context of China's agricultural development but also show the key ideas of agricultural development. Therefore, this study explores its impact on agricultural quality development from the perspective of FYP. The results provide evidence for examining the governance performance of the government and the objective evaluation and restraint of the FYP. As agriculture moves toward the stage of high-quality development, the Chinese government should strengthen the critical guiding role of the FYP and pay attention to quality indicators such as technical progress, efficiency improvement and regional coordination in the formulation of the FYP.
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Whether authority decentralization can strengthen the effort of local governments to reduce environmental pollution is theoretically and practically important. Based on a reform of delegating power of organizing marathon games from central to local governments in China, this paper finds that air quality during the days of marathon games improves significantly after decentralization. Such results pass a series of robustness checks. Moreover, we find that the improvement of air quality during marathon games after authority decentralization have close relationship with official promotion incentives, local political cycles and the career concerns of prefectural secretaries and mayors.
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The role of regional governments in fostering opportunity entrepreneurship has received increasing attention from both academics and practitioners. Drawing on research on entrepreneurial ecosystem (EE), this study provides a more analytical and holistic account of the supportive role of regional governments in underdeveloped institutional environments and their interactions with other key elements in regional EEs. I propose that in underdeveloped institutional environments, a regional government which is able to perform its core function of delivering public and social services is positively associated with the growth of opportunity entrepreneurship. This effect becomes stronger in regions with more market-based economies, higher education institutions (HEIs), an entrepreneurial culture, and social entrepreneurship. Empirical results based on entrepreneurship data at the provincial level in China between 1993 and 2013 provide strong support for the hypotheses. This study contributes to the literature on EE by providing more systematic evidence from underdeveloped institutional environments, and has policy implications for promoting opportunity entrepreneurship.
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Using the percentage of ownership of the top ten non-state-owned shareholders (NSOSs) in state-owned enterprises (SOEs) as a form of corporate governance uncertainty (CGU), we examine the impacts of CGU on SOEs' green innovation performance, as measured mainly by the number of granted green patents. Analyzing data of Chinese listed SOEs from 2007 to 2017 and employing the instrumental variable approach to address the endogeneity issue, we find that CGU has a statistically significant and negative impact on SOEs' green innovation performance. Examination of the moderating effects reveals that the negative relationship between CGU and SOEs' green innovation performance is intensified if NSOSs appoint directors to the board. By contrast, higher levels of fiscal revenue (which indicate less government intervention in SOEs) and environmental regulations mitigate such a negative relationship. Further analyses on the heterogeneous effects demonstrate that the effects of CGU on SOEs' green innovation performance are more pronounced among competitive industries, local SOEs, and SOEs with single-listed shares.
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This study investigates how local decision-makers influence the impact of high-level government meta-governance tools on environmental inter-local collaboration when the collective benefits of inter-jurisdictional collaboration conflict with the selective benefits of decision-makers. We address this issue focusing on empirical cases of inter-provincial watershed environmental collaborations in China. Using a difference-in-differences model for the analysis, we find that meta-governance tools of high-level government can facilitate the adoption of environmental inter-local collaboration arrangements. However, this facilitation decreases when local decision-makers lack progressive ambition or face peer competition. This study demonstrates the strategic responses of local decision-makers in environmental inter-local collaboration influenced by high-level government.
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Why has there been uneven success in reducing air pollution even in the same locality over time? This book offers an innovative theorization of how local political incentives can affect bureaucratic regulation. Using empirical evidence, it examines and compares the control of different air pollutants in China-an autocracy-and, to a lesser extent, Mexico-a democracy. Making use of new data, approaches, and techniques across political science, environmental sciences, and engineering, Shen reveals that local leaders and politicians are incentivized to cater to the policy preferences of their superiors or constituents, respectively, giving rise to varying levels of regulatory stringency during the leaders' tenures. Shen demonstrates that when ambiguity dilutes regulatory effectiveness, having the right incentives and enhanced monitoring is insufficient for successful policy implementation. Vividly explaining key phenomena through anecdotes and personal interviews, this book identifies new causes of air pollution and proposes timely solutions. This title is also available as Open Access on Cambridge Core.
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This paper attempts to shed some new light on two puzzles about Chinese economy: Rapid economic growth despite pandemic corruption; dramatic development of the private sector despite ‘ownership discrimination' in financial resource allocation. In our model, the productive bribe facilitates the more efficient private firm to obtain the scarce financial resource, either from the bank or from the state‐owned enterprise, and corrects the initial allocation distortion. Meanwhile, our model also generates the distortionary and the predatory bribes which hurt the economy.
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China's remarkable economic success rests on a foundation of political reform providing a considerable degree of credible commitment to markets. This reform reflects a special type of institutionalized decentralization that the authors call “federalism, Chinese style.” This form of decentralization has three consequences. First, it fosters competition, not only in product markets, but also among local governments for labor and foreign capital. This competition, in turn, encourages local government experimentation and learning with new forms of enterprises, regulation, and economic relationships. Second, it provides incentives for local governments to promote local economic prosperity. Finally, it provides a significant amount of protection to local governments and their enterprises from political intrusion by the central government.
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Aligning the interests of local governments with market development is an important issue for developing and transition economies. Using a panel data set from China, we investigate the relationship between provincial government's fiscal incentives and provincial market development. We report three empirical findings. First, we find that during the period of “fiscal contracting system” the discrepancy between ex ante contracts and ex post implementation was relatively small, suggesting that the fiscal contracts were credible. Second, we find a much higher correlation, about four times, between the provincial government's budgetary revenue and its expenditure during 1980s and 1990s as compared to 1970s, demonstrating that provincial governments faced much stronger ex post fiscal incentives after reform. Third, we find that stronger ex ante fiscal incentives, measured by the contractual marginal retention rate of the provincial government in its budgetary revenue, are associated with faster development of the non-state sector as well as more reforms in the state sector in the provincial economy. This holds even when we control for the conventional measure of fiscal decentralization. Finally, we compare federalism, Chinese style, to federalism, Russian style.
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Wedevelop a theory of institutional change and apply it to analyze China's transition toward capitalism. We focus on how product market competition induces institutional change through the interaction between bureaucrats and managers in regional government-controlled economies. When cross-regional competition is sufficiently intense, each region has to cut production costs. Given that the efforts of managers are not verifiable, local governments may have to grant total or partial residual shares to the managers. In general, intense product competition stimulates the rise of a private property system. We submit our theory to a vigorous empirical test using China's industrial census data of more than 400,000 firms. The test supports strongly our postulation that cross-regional competition is the driving force behind China's transition toward capitalism.J. Comp. Econom., June 2000, 28(2), pp. 269–292. City University of Hong Kong, Kowloon, Hong Kong; and Peking University, Beijing, China.
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Recent reforms of Chinese state-owned enterprises strengthened a nascent managerial labor market by incorporating incentives suggestive of competitive Western labor markets. Poorly performing firms were more likely to have a new manager selected by auction, to be required to post a higher security deposit, and to be subject to more frequent review of the manager's contract. Managers could be, and were, fired for poor performance. Managerial pay was linked to the firm's sales and profits, and reform strengthened the profit link and weakened the sales link. Thus, the economic reforms helped develop an improved system of managerial resource allocation responsive to market forces. Copyright 1995 by University of Chicago Press.
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We model organization as the command-and-communication network of managers erected on top of technology (which is modeled as a collection of plants). In our framework, the role of a manager is to deal with shocks that affect the plants that he oversees directly or indirectly. Organizational form is then an instrument for (a) economizing on managerial costs, and (b) providing managerial incentives. We show that two particular organizational forms, the M-form (multidivisional form) and the U-form (unitary form), are the optimal structures when shocks are sufficiently "big." We argue however that, under certain empirical assumptions, the M-form is likely to be strictly preferable once incentives are taken into account. We conclude by showing that the empirical hypotheses on which this comparison rests are satisfied for Chinese data.
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In China, local governments have actively contributed to the growth of new firms. In Russia, local governments have typically stood in the way, be it through taxation, regulation, or corruption. We argue that the difference can be traced to lies in the degree of political centralization present in China, but not in Russia. In China the central government has been strong and disciplined enough to induce local governments to favor growth. In Russia, it has not. We agree, but with an important caveat. We believe the experience of Russia indicates that another ingredient is crucial, namely political centralization. Copyright 2002, International Monetary Fund
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Thriving markets require not only an appropriately designed economic system, but a secure political foundation that limits the ability of the state to confiscate wealth. This requires a form of limited government, that is, political institutions that credibly commit the state to honor economic and political rights. This article studies how limited government arose in the developed West, focusing on the critical role of federalism for protecting markets in both England and the United States. Federalism proved fundamental to the impressive economic rise of England in the 18th century and the United States in the 19th and early 20th centuries. The article also shows that federalism underpins the spectacular economic growth in China over the past 15 years. Copyright 1995 by Oxford University Press.
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The authors advance a new perspective in the study of federalism. Their approach views federalism as a governance solution of the state to credibly preserving market incentives. Market incentives are preserved if the state is credibly prevented from compromising on future economic success and from bailing out future failures. The salient features of federalism--decentralization of information and authority and interjurisdictional competition--help provide credible commitment or these purposes. In addition, the authors suggest that some federalism are self-sustaining. Copyright 1997 by American Economic Association.
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Evidence from a survey of 105 shop-owners in Moscow and Warsaw shows that the reliance on private protection, as well as the burden of regulation and corruption, are much greater in Moscow. The evidence suggests that the `invisible hand' model of government better fits the Warsaw local government, and the`grabbing hand' model is more appropriate for Moscow. The evidence implies that the singular focus on the speed of economic reforms to understand the success of transition is misplaced, and that the quality of government may be as essential.
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This paper summarizes the empirical and theoretical research on executive compensation and provides a comprehensive and up-to-date description of pay practices (and trends in pay practices) for chief executive officers (CEOs). Topics discussed include the level and structure of CEO pay (including detailed analyses of annual bonus plans, executive stock options, and option valuation), international pay differences, the pay-setting process, the relation between CEO pay and firm performance ("pay-performance sensitivities"), the relation between sensitivities and subsequent firm performance, relative performance evaluation, executive turnover, and the politics of CEO pay.
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In the 1980s fiscal reform in China provided localities with strong incentives and a heightened capacity to pursue industrial growth. As a result, local governments have responded vigorously to economic reform, managing rural collective-owned enterprises as diversified corporations, with local officials performing the role of a board of directors. This article analyzes the incentives that have led to the development of this form of local state corporatism and rapid rural industrialization, and it describes the ways in which local governments coordinate economic activity and reallocate revenues from industrial production. These developments are important for two reasons: they show that local government involvement in the economy does not necessarily decline with the expansion of market coordination; and they offer a successful model of reform that serves as a counterpoint to privatization proposals.
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China's rural industrial sector has been the engine driving much of the Chinese economy's dynamism during the reform period. The nature and development of this sector, also referred to as township and village enterprises (TVEs) defy easy explanation. Across regions, there is dramatic variation in property rights among TVEs, ranging from local government ownership to outright private ownership. This book focuses on China's rural industries, offering a theoretical framework to explain institutional change. Susan Whiting explores the complex interactions of individuals, institutions and the broader political economy to examine variation and change in property rights and extractive institutions in China's rural industrial sector. Whiting explains why public ownership predominated during the early years of reform and why privatization is now taking place. This book will be of interest not only to those studying Chinese economic development and reform but also to scholars and students of comparative politics and political economy.
Book
How has the Chinese central government been able to avoid the crippling hyperinflation that has bedeviled so many developing and centrally planned economies? China’s unique, de facto federalism, Huang argues - a combination of economic and fiscal decentralization and strong political centralization - has spurred economic growth and allowed political institutions to impose restraints on inflation from the top down. Focusing on central-local relations and the controlling role of political institutions, Yasheng Huang explains why local Chinese officials comply, even against their own economic interests, with the investment-reduction and inflation-control policies of the central government. Drawing upon institutional economics, he hypothesizes that the central government’s powerful role in appointing and firing bureaucrats at the local level helps to reconcile some of the central-local economic policy differences. Huang uses systematic data analysis to test this proposition. This book also offers detailed descriptions of the roles of local governments in economic and investment management.
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This paper examines the relation between the monitoring of CEOs by inside and outside directors and CEO resignations. CEO resignations are predicted using stock returns and earnings changes as measures of prior performance. There is a stronger association between prior performance and the probability of a resignation for companies with outsider-dominated boards than for companies with insider-dominated boards. This result does not appear to be a function of ownership effects, size effects, or industry effects. Unexpected stock returns on days when resignations are announced are consistent with the view that directors increase firm value by removing bad management.
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We document the behavior of a variety of financial variables surrounding CEO departures, and estimate the extent to which changes in potentially discretionary variables are explained by poor economic performance rather than direct managerial discretion. We conclude that turnover-related changes in R&D, advertising, capital expenditures, and accounting accruals are due mostly to poor performance. To the extent that outgoing or incoming managers exercise discretion over these variables, the discretion appears to be limited to firms where the CEO's departure is preceded by poor performance. We find no evidence of managerial discretion in strongly performing firms where the CEO retires as part of the normal succession process.
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ABSTRACT : This paper looks at how well Finland performs in high growth entrepreneurship and uses data from the Global Entrepreneurship monitor to benchmark Finland against other European countries. It is found that Finland’s prevalence rate of high growth entrepreneurial activity lags significantly behind most of its European and all of its Scandinavian peers. That this weak performance in high-growth entrepreneurship goes hand in hand with Finland being a world leader in per capita investment in R&D may be described as a paradox. The reasons underlying the underperformance of Finland remain however unclear. At this point, explanations should be sought in culture, industrial traditions and systemic experience in high growth entrepreneurship.
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We develop a theory of the ownership of firms in an environment without secure property rights against state encroachment. “Private ownership” leads to excessive revenue hiding, and “state ownership” (i.e., national government ownership) fails to provide incentives for managers and local governments in a credible way. Because “local government ownership” integrates local government activities and business activities, local government may better serve the interests of the national government, and thus local government ownership may credibly limit state predation, increase local public goods provision, and reduce costly revenue hiding. We use our theory to interpret the relative success of local government-owned firms during China's transition to a market economy.
Article
This paper analyzes the behavior of U. S. governors from 1950 to 1986 to investigate a reputation-building model of political behavior. We argue that differences in the behavior of governors who face a binding term limit and those who are able to run again provides a source of variation in discount rates that can be used to test a political agency model. We find evidence that taxes, spending, and other policy instruments respond to a binding term limit if a Democrat is in office. The result is a fiscal cycle in term-limit states, which lowers state income when the term limit binds.
Article
The authors document that forced resignations of top managers are preceded by large and significant declines in operating performance and followed by large improvements in performance. However, forced resignations are rare and are due more often to external factors (e.g., blockholder pressure, takeover attempts, etc.) than to normal board monitoring. Following the management change, these firms significantly downsize their operations and are subject to a high rate of corporate control activity. Normal retirements are followed by small increases in operating income and are also subject to a slightly higher than normal incidence of postturnover corporate control activity. Copyright 1995 by American Finance Association.
Article
This paper develops a model of the political economy of tax-setting in a multijurisdictional world, where voters' choices and incumbent behavior are determined simultaneously. Voters are assumed to make comparisons between jurisdictions to overcome political agency problems. This forces incumbents into a (yardstick)competition in which they care about what other incumbents are doing. We provide a theoretical framework and empirical evidence using U.S. state data from 1960 to 1988. The results are encouraging to the view that vote-seeking and tax-setting are tied together through the nexus of yardstick competition.
Article
This paper studies the association between a firm's stock returns and subsequent top management changes. Consistent with internal monitoring of management, there is an inverse relation between the probability of a management change and a firm's share performance. This relation can result from monitoring by the board, other top managers, or blockholders. However, unless share performance is extremely good or bad, logit models have no predictive ability. No average stock reaction is detected at announcement of a top management change.
Article
The government's incentives to bail out inefficient projects are determined by the trade-off between political benefits and economic costs, the latter depending on the decentralization of government. Two effects of federalism are derived: first, fiscal competition among local governments under factor mobility increases the opportunity costs of bailout and, thus, serves as a commitment device (the 'competition effect'); second, monetary centralization, together with fiscal decentralization, induces a conflict of interests and, thus, may harden budget constraints and reduce inflation (the 'checks and balance effect'). The authors' analysis is used to interpret China's recent experience of transition to a market economy. Copyright 1998 by American Economic Association.
Article
We model an organization as a hierarchy of managers erected on top of a technology (here consisting of a collection of plants). In our framework, the role of a manager is to take steps to reduce the adverse consequences of shocks that affect the plants beneath him. We argue that different organizational forms give rise to different information about managers' performance and therefore differ according to how effective incentives can be in encouraging a good performance. In particular, we show that, under certain assumptions, the M-form (multi-divisional form) is likely to provide better incentives than the U-form (unitary form) because it promotes yardstick competition (i.e. relative performance evaluation) more effectively. We conclude by presenting evidence that the assumptions on which this comparison rests are satisfied for Chinese data.
Market preserving fiscal federalism in the American Monetary Union
  • McKinnon
McKinnon, R., 1997. Market preserving fiscal federalism in the American Monetary Union. In: Blejar, M., Ter-Minassian, T. (Eds.), Macroeconomic Dimensions of Public Finance: Essays in Honor of Vito Tanzi. Routeledge, London, pp. 73 -93.
Federalism with and without political centralization: China vs. Russia in transitional economics: how much progress? IMF Staff Papers 48
  • O Blanchard
  • A Shleifer
Blanchard, O., Shleifer, A., 2001. Federalism with and without political centralization: China vs. Russia in transitional economics: how much progress? IMF Staff Papers 48, 171 – 179.
Federalism with and without political centralization: China vs. Russia in transitional economics: how much progress?
  • Blanchard