Urban government capacity and economic performance: An analysis of Chinese cities

Cities with great government capacity are expected to become more effective in mobilizing resources and promoting urban economic development than other cities. While urban government capacity is important in its own right, its size structure across nearby cities is crucial because multiple channels wherein local governments generate externalities beyond their jurisdictions are present. By quantifying urban government capacity and regional size structure across Chinese cities in 2010, I examine the direct effect of a city’s government capacity on its economic performance and the indirect effect of the urban government capacity’s size structure among neighboring cities. Our analysis confirms that urban government capacity has a positive and significant effect on urban economic performance, and cities exhibit better economic performance in regions that have a leading city in urban government capacity than in regions where urban government capacity is relatively evenly distributed. Further examination suggests that the effect of urban government capacity on economic performance is stronger for cities in monocentric regions than in other regions.