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The Revealed Preference of the Chinese Communist Party Leadership: Investing in Local Economic Development versus Rewarding Social Connections

Author

Listed:
  • Matthew E. Kahn
  • Weizeng Sun
  • Jianfeng Wu
  • Siqi Zheng

Abstract

Over the last 30 years, the Chinese government has invested in new industrial parks with the intent of stimulating urban economic growth. The central government delegates the site selection decision to provincial leaders. A principal-agent issue arises because the central government prioritizes efficiency and equity criteria while the provincial leader may allocate such place based investments to reward socially connected mayors. We present a revealed preference test of industrial park site selection and document the willingness of China’s provincial leaders to sacrifice economic development in order to reward social connections. We examine the causes and consequences of this misallocation of capital.

Suggested Citation

  • Matthew E. Kahn & Weizeng Sun & Jianfeng Wu & Siqi Zheng, 2018. "The Revealed Preference of the Chinese Communist Party Leadership: Investing in Local Economic Development versus Rewarding Social Connections," NBER Working Papers 24457, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24457
    Note: PE POL
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    Cited by:

    1. César Hidalgo & Pierre-Alexandre Balland & Ron Boschma & Mercedes Delgado & Maryann Feldma & Koen Frenken & Edward Glaeser & Canfei He & Dieter F. Kogler & Andrea Morrison & Frank Neffke & David Rigby, 2018. "The Principle of Relatedness," Papers in Evolutionary Economic Geography (PEEG) 1830, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jul 2018.
    2. Yang, Jinyang & Bazan Ruiz, Muchin I.A, 2021. "Are pilot experiments random? Social connections and policy expansion in China," The Journal of the Economics of Ageing, Elsevier, vol. 18(C).
    3. Hidalgo, César A., 2023. "The policy implications of economic complexity," Research Policy, Elsevier, vol. 52(9).
    4. C'esar A. Hidalgo, 2022. "The Policy Implications of Economic Complexity," Papers 2205.02164, arXiv.org, revised Aug 2023.
    5. Danglun Luo & Congcong Liu & Lifan Wu, 2020. "Horizontal Networks and Economic Performance: Evidence from City Leaders in China," Social Science Quarterly, Southwestern Social Science Association, vol. 101(4), pages 1359-1373, July.

    More about this item

    JEL classification:

    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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