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The incentive role of creating "cities" in China

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  • Li, Lixing

Abstract

China operated an urbanization policy by which counties could be given city status between 1983 and 1997. The policy had substantial impacts on the new administrative entities, including more discretionary power and fiscal independence. Such "county-to-city upgrading" provided the central government with an instrument to reward localities. Using a large dataset covering all counties during 1993-1997, I show that upgrading is not an automatic procedure that endorses the high urbanization levels in existing counties. Although official guidelines for upgrading counties to cities were published, these requirements were largely ignored in practice. Instead, economic growth rate was the key factor in determining which counties obtained city status. This paper interprets the creation of county-level cities through upgrading as part of the incentive structure of Chinese local officials. The importance of both fiscal and political incentives facing the local government in promoting economic growth is highlighted.

Suggested Citation

  • Li, Lixing, 2011. "The incentive role of creating "cities" in China," China Economic Review, Elsevier, vol. 22(1), pages 172-181, March.
  • Handle: RePEc:eee:chieco:v:22:y:2011:i:1:p:172-181
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    Cited by:

    1. Chenggang Xu, 2011. "The Fundamental Institutions of China's Reforms and Development," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 1076-1151, December.
    2. Lixing Li & Guangrong Ma, 2015. "Government Size and Tax Evasion: Evidence from China," Pacific Economic Review, Wiley Blackwell, vol. 20(2), pages 346-364, May.
    3. repec:bla:etrans:v:25:y:2017:i:3:p:439-469 is not listed on IDEAS
    4. John Knight, 2015. "The Principal-Agent Problem, Economic Growth, Subjective Wellbeing and Social Instability: China’s Effective but Flawed Governance," Economics Series Working Papers 758, University of Oxford, Department of Economics.
    5. Mukim,Megha & Zhu,Tingting Juni, 2015. "Empowering cities : good for growth ? evidence from China," Policy Research Working Paper Series 7193, The World Bank.
    6. Fan, Shenggen & Li, Lixing & Zhang, Xiaobo, 2012. "Challenges of creating cities in China: Lessons from a short-lived county-to-city upgrading policy," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 476-491.
    7. Tie-Ying Liu & Chi-Wei Su & Xu-Zhao Jiang, 2016. "Is China’S Urbanization Convergent?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(05), pages 1-18, December.
    8. repec:eee:apmaco:v:311:y:2017:i:c:p:375-389 is not listed on IDEAS
    9. repec:eee:spacre:v:19:y:2016:i:2:p:252-260 is not listed on IDEAS
    10. Caldeira, Emilie, 2012. "Yardstick competition in a federation: Theory and evidence from China," China Economic Review, Elsevier, vol. 23(4), pages 878-897.
    11. Xu, Cheng-Gang, 2010. "The Institutional Foundations of China’s Reforms and Development," CEPR Discussion Papers 7654, C.E.P.R. Discussion Papers.
    12. Che, Yi, 2009. "Mismatch: land reallocations, recovery land rental and land rental market development in rural China," MPRA Paper 39794, University Library of Munich, Germany.
    13. Che, Jiahua & Chung, Kim-Sau & Lu, Yang K., 2017. "Decentralization and political career concerns," Journal of Public Economics, Elsevier, vol. 145(C), pages 201-210.
    14. Chao Li & John Gibson, 2016. "Pareto's Law and City Size in China: Diverging Patterns in Land and People," Working Papers in Economics 16/09, University of Waikato.

    More about this item

    Keywords

    Incentive mechanism Economic growth Regional competition Urbanization China;

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy

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