IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v119y2023ics0264999322003534.html
   My bibliography  Save this article

Effects of decentralization on firm performance: Evidence from Chinese county-level quasi-experiments

Author

Listed:
  • Jin, Haizhen

Abstract

How does decentralization affect enterprises at a microeconomic level? While many studies have identified decentralization's implications for macroeconomic outcomes, little is known about its impact on firms. This study applies county-level quasi-experiments of decentralization reforms in China to investigate the impact of decentralization on firm performance and its variance by type of decentralization and firm. Using firm-level data from 2003 to 2013, this study finds that administrative reform significantly improves firm performance by reducing costs and increasing profits. When implemented alone, however, fiscal reform has only an auxiliary effect and increases firm debt; the two reforms are complementary. Moreover, administrative reform has the greatest positive impact on private firms, with a smaller effect on foreign firms and a negative effect on state firms, due to economic needs. Fiscal reform has a greater negative impact on SOEs (state-owned enterprises) than on non-SOEs due to political closeness.

Suggested Citation

  • Jin, Haizhen, 2023. "Effects of decentralization on firm performance: Evidence from Chinese county-level quasi-experiments," Economic Modelling, Elsevier, vol. 119(C).
    • Handle: RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003534
    DOI: 10.1016/j.econmod.2022.106116
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999322003534
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2022.106116?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Iimi, Atsushi, 2005. "Decentralization and economic growth revisited: an empirical note," Journal of Urban Economics, Elsevier, vol. 57(3), pages 449-461, May.
    2. Qian, Yingyi & Roland, Gerard, 1998. "Federalism and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 88(5), pages 1143-1162, December.
    3. Li, Hongbin & Yang, Zheyu & Yao, Xianguo & Zhang, Haifeng & Zhang, Junsen, 2012. "Entrepreneurship, private economy and growth: Evidence from China," China Economic Review, Elsevier, vol. 23(4), pages 948-961.
    4. da Cruz, Nuno F. & Marques, Rui Cunha, 2012. "Mixed companies and local governance: no man can serve two masters," LSE Research Online Documents on Economics 59778, London School of Economics and Political Science, LSE Library.
    5. Andrés Rodríguez-Pose & Roberto Ezcurra, 2011. "Is fiscal decentralization harmful for economic growth? Evidence from the OECD countries," Journal of Economic Geography, Oxford University Press, vol. 11(4), pages 619-643, July.
    6. Firth, Michael & Lin, Chen & Liu, Ping & Wong, Sonia M.L., 2009. "Inside the black box: Bank credit allocation in China's private sector," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1144-1155, June.
    7. Mah, Jai S., 2013. "Globalization, decentralization and income inequality: The case of China," Economic Modelling, Elsevier, vol. 31(C), pages 653-658.
    8. Gao, Yuchen & Hu, Yimei & Liu, Xielin & Zhang, Huanren, 2021. "Can public R&D subsidy facilitate firms’ exploratory innovation? The heterogeneous effects between central and local subsidy programs," Research Policy, Elsevier, vol. 50(4).
    9. Chari, Murali D.R. & Banalieva, Elitsa R., 2015. "How do pro-market reforms impact firm profitability? The case of India under reform," Journal of World Business, Elsevier, vol. 50(2), pages 357-367.
    10. Gong, Qiang & Liu, Chong & Wu, Min, 2021. "Does administrative decentralization enhance economic growth? Evidence from a quasi-natural experiment in China," Economic Modelling, Elsevier, vol. 94(C), pages 945-952.
    11. Enikolopov, Ruben & Zhuravskaya, Ekaterina, 2007. "Decentralization and political institutions," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2261-2290, December.
    12. Dougherty, Sean & Herd, Richard & He, Ping, 2007. "Has a private sector emerged in China's industry? Evidence from a quarter of a million Chinese firms," China Economic Review, Elsevier, vol. 18(3), pages 309-334.
    13. Huang, Bin & Gao, Mengmeng & Xu, Caiqun & Zhu, Yu, 2017. "The impact of Province-Managing-County fiscal reform on primary education in China," China Economic Review, Elsevier, vol. 45(C), pages 45-61.
    14. Olivier Blanchard & Andrei Shleifer, 2001. "Federalism With and Without Political Centralization: China Versus Russia," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 1-8.
    15. Dougherty, Sean M. & McGuckin, Robert H., 2008. "The Effects of Federalism on Productivity in Chinese Firms," Management and Organization Review, Cambridge University Press, vol. 4(1), pages 39-61, March.
    16. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    17. Shenghao Gao & Liming Wang & Ningyue Liu & Min Zhang, 2019. "Fiscal decentralization and corporate investment: empirical evidence from China," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 22(1), pages 51-68, January.
    18. Faguet, Jean-Paul, 2014. "Decentralization and Governance," World Development, Elsevier, vol. 53(C), pages 2-13.
    19. Jin, Hehui & Qian, Yingyi & Weingast, Barry R., 2005. "Regional decentralization and fiscal incentives: Federalism, Chinese style," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1719-1742, September.
    20. Liu, Shasha & Ji, Mianmian & Wang, Huijuan, 2021. "Decentralization and firm innovation: Evidence from a natural experiment in China," Economic Modelling, Elsevier, vol. 94(C), pages 501-512.
    21. Bai, Chong-En & Lu, Jiangyong & Tao, Zhigang, 2009. "How does privatization work in China?," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 453-470, September.
    22. Dongmin Kong & Wenzhe Zhang & Gaowen Kong, 2022. "Does Government Decentralization Shape Firms’ Pollution Emissions? Evidence from a Natural Experiment in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(11), pages 3136-3151, September.
    23. Chen, Baizhu & Feng, Yi, 2000. "Determinants of economic growth in China: Private enterprise, education, and openness," China Economic Review, Elsevier, vol. 11(1), pages 1-15.
    24. Brandt, Loren & Li, Hongbin, 2003. "Bank discrimination in transition economies: ideology, information, or incentives?," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 387-413, September.
    25. Andrea Filippetti & Agnese Sacchi, 2016. "Decentralization and economic growth reconsidered: The role of regional authority," Environment and Planning C, , vol. 34(8), pages 1793-1824, December.
    26. Davoodi, Hamid & Zou, Heng-fu, 1998. "Fiscal Decentralization and Economic Growth: A Cross-Country Study," Journal of Urban Economics, Elsevier, vol. 43(2), pages 244-257, March.
    27. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645, Elsevier.
    28. Hongbin Li & Lingsheng Meng & Junsen Zhang, 2006. "Why Do Entrepreneurs Enter Politics? Evidence from China," Economic Inquiry, Western Economic Association International, vol. 44(3), pages 559-578, July.
    29. Zhang, Tao & Zou, Heng-fu, 1998. "Fiscal decentralization, public spending, and economic growth in China," Journal of Public Economics, Elsevier, vol. 67(2), pages 221-240, February.
    30. Li, Kai & Yue, Heng & Zhao, Longkai, 2009. "Ownership, institutions, and capital structure: Evidence from China," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 471-490, September.
    31. Thornton, John, 2007. "Fiscal decentralization and economic growth reconsidered," Journal of Urban Economics, Elsevier, vol. 61(1), pages 64-70, January.
    32. Yousha Liang & Kang Shi & Lisheng Wang & Juanyi Xu, 2017. "Local Government Debt and Firm Leverage: Evidence from China," Asian Economic Policy Review, Japan Center for Economic Research, vol. 12(2), pages 210-232, July.
    33. Kang, Young-Sam & Kim, Byung-Yeon, 2012. "Ownership structure and firm performance: Evidence from the Chinese corporate reform," China Economic Review, Elsevier, vol. 23(2), pages 471-481.
    34. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    35. Seung Ho Park & Shaomin Li & David K Tse, 2006. "Market liberalization and firm performance during China's economic transition," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(1), pages 127-147, January.
    36. Yuanzheng Cao & Yingyi Qian & Barry R. Weingast, 1999. "From federalism, Chinese style to privatization, Chinese style," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 103-131, March.
    37. Wei, Zuobao & Xie, Feixue & Zhang, Shaorong, 2005. "Ownership Structure and Firm Value in China's Privatized Firms: 1991–2001," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(1), pages 87-108, March.
    38. Shenghao Gao & Liming Wang & Ningyue Liu & Min Zhang, 2019. "Fiscal decentralization and corporate investment: empirical evidence from China," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 22(1), pages 51-68, January.
    39. Amit Baran Chakrabarti & Sougata Ray, 2018. "An exploratory study on the impact of pro-market reforms on the Indian corporate sector," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 21(1), pages 1-20, January.
    40. Xu, Dean & Pan, Yigang & Wu, Changqi & Yim, Bennett, 2006. "Performance of domestic and foreign-invested enterprises in China," Journal of World Business, Elsevier, vol. 41(3), pages 261-274, September.
    41. Norman Gemmell & Richard Kneller & Ismael Sanz, 2013. "Fiscal Decentralization And Economic Growth: Spending Versus Revenue Decentralization," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 1915-1931, October.
    42. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2016. "Fiscal Federalism, Decentralization, And Economic Growth: A Meta-Analysis," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1445-1463, July.
    43. Choi, Suk Bong & Lee, Soo Hee & Williams, Christopher, 2011. "Ownership and firm innovation in a transition economy: Evidence from China," Research Policy, Elsevier, vol. 40(3), pages 441-452, April.
    44. Justin Yifu Lin & Zhiqiang Liu, 2000. "Fiscal Decentralization and Economic Growth in China," Economic Development and Cultural Change, University of Chicago Press, vol. 49(1), pages 1-21.
    45. Guangrong Ma & Jie Mao, 2018. "Fiscal Decentralisation and Local Economic Growth: Evidence from a Fiscal Reform in China," Fiscal Studies, John Wiley & Sons, vol. 39(1), pages 159-187, March.
    46. Xiaofei Pan & Yiping Wu & Huihang Wu, 2019. "Decentralization and Firm Investments: Evidence from China," International Review of Finance, International Review of Finance Ltd., vol. 19(2), pages 287-313, June.
    47. Amit Baran Chakrabarti & Sougata Ray, 2018. "An exploratory study on the impact of pro-market reforms on the Indian corporate sector," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 21(1), pages 1-20, January.
    48. Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 185-205, Fall.
    49. Wang Pu & Fei Xu & Rui Cunha Marques, 2021. "A bibliometric and meta-analysis of studies on public–private partnership in China," Construction Management and Economics, Taylor & Francis Journals, vol. 39(9), pages 773-789, September.
    50. Lee, Keun & Kim, Byung-Yeon & Park, Young-Yoon & Sanidas, Elias, 2013. "Big businesses and economic growth: Identifying a binding constraint for growth with country panel analysis," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 561-582.
    51. Li, Pei & Lu, Yi & Wang, Jin, 2016. "Does flattening government improve economic performance? Evidence from China," Journal of Development Economics, Elsevier, vol. 123(C), pages 18-37.
    52. Weingast, Barry R., 2009. "Second generation fiscal federalism: The implications of fiscal incentives," Journal of Urban Economics, Elsevier, vol. 65(3), pages 279-293, May.
    53. Jiahua Che & Yingyi Qian, 1998. "Insecure Property Rights and Government Ownership of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 467-496.
    54. Li, Shaomin & Li, Shuhe & Zhang, Weiying, 2000. "The Road to Capitalism: Competition and Institutional Change in China," Journal of Comparative Economics, Elsevier, vol. 28(2), pages 269-292, June.
    55. Wen Wang & Xinye Zheng & Zhirong Zhao, 2012. "Fiscal Reform and Public Education Spending: A Quasi-natural Experiment of Fiscal Decentralization in China," Publius: The Journal of Federalism, CSF Associates Inc., vol. 42(2), pages 334-356, April.
    56. Y Luo, 2003. "Market-seeking MNEs in an emerging market: How parent–subsidiary links shape overseas success," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 34(3), pages 290-309, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Lei & Luo, Changtuo, 2023. "Does administrative decentralization promote outward foreign direct investment and productivity? Evidence from China," Economic Modelling, Elsevier, vol. 124(C).
    2. Jiang, Weijie & Li, Yidong, 2023. "Effect of fiscal decentralization on pollution reduction: Firm-level evidence from China," Economic Modelling, Elsevier, vol. 129(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Li, Lei & Luo, Changtuo, 2023. "Does administrative decentralization promote outward foreign direct investment and productivity? Evidence from China," Economic Modelling, Elsevier, vol. 124(C).
    2. Jorge Martinez-Vazquez & Santiago Lago-Peñas & Agnese Sacchi, 2017. "The Impact Of Fiscal Decentralization: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(4), pages 1095-1129, September.
    3. Canavire-Bacarreza, Gustavo & Martinez-Vazquez, Jorge & Yedgenov, Bauyrzhan, 2020. "Identifying and disentangling the impact of fiscal decentralization on economic growth," World Development, Elsevier, vol. 127(C).
    4. Cong Minh Huynh & Hoai Nam Tran, 2021. "Moderating effects of corruption and informality on the fiscal decentralization—economic growth nexus: Insights from OECD countries," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(2), pages 355-373, June.
    5. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2014. "Fiscal Federalism, Decentralization and Economic Growth: Survey and Meta-Analysis," CESifo Working Paper Series 4985, CESifo.
    6. Burret, Heiko T. & Feld, Lars P. & Schaltegger, Christoph A., 2022. "Fiscal federalism and economic performance new evidence from Switzerland," European Journal of Political Economy, Elsevier, vol. 74(C).
    7. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2016. "Fiscal Federalism, Decentralization, And Economic Growth: A Meta-Analysis," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1445-1463, July.
    8. Chen, Xiaodong & Mi, Haoming & Zhou, Peng, 2023. "Whether to decentralize and how to decentralize? The optimal fiscal federalism in an endogenous growth model," Cardiff Economics Working Papers E2023/11, Cardiff University, Cardiff Business School, Economics Section.
    9. Alessio Mitra & Athanasios Chymis, 2022. "Federalism, but how? The impact of vertical fiscal imbalance on economic growth. Evidence from Belgium," Economics and Politics, Wiley Blackwell, vol. 34(2), pages 322-350, July.
    10. Gong, Qiang & Liu, Chong & Wu, Min, 2021. "Does administrative decentralization enhance economic growth? Evidence from a quasi-natural experiment in China," Economic Modelling, Elsevier, vol. 94(C), pages 945-952.
    11. Pierre Salmon, 2013. "Decentralization and growth: what if the cross-jurisdiction approach had met a dead end?," Constitutional Political Economy, Springer, vol. 24(2), pages 87-107, June.
    12. Mitchell, Austin M. & Yin, Weiwen, 2022. "Political centralization, career incentives, and local economic growth in Edo Japan," Explorations in Economic History, Elsevier, vol. 85(C).
    13. Soonae Park & Min-Gean Park & Kyung-Min Nam, 2019. "Growth effects of fiscal decentralization with weak economic motivation: the case of South Korea," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 63(3), pages 399-436, December.
    14. Zao Sun & Chun-Ping Chang & Yu Hao, 2017. "Fiscal decentralization and China’s provincial economic growth: a panel data analysis for China’s tax sharing system," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(5), pages 2267-2289, September.
    15. Tristan Canare, 2021. "Decentralization and Development Outcomes: What Does the Empirical Literature Really Say?," Hacienda Pública Española / Review of Public Economics, IEF, vol. 237(2), pages 111-151, June.
    16. Septimiu-Rares SZABO, 2017. "The Empirical Relationship Between Fiscal Decentralization And Economic Growth: A Review Of Variables, Models And Results," Management Research and Practice, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 9(2), pages 47-66, June.
    17. Muhammad Shahid & Rukhsana Kalim, 2020. "Decentralized Tax Revenue, Institutional Complementarity and Economic Growth: A Time Series Analysis of Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 25-33.
    18. Yushkov, Andrey, 2015. "Fiscal decentralization and regional economic growth: Theory, empirics, and the Russian experience," Russian Journal of Economics, Elsevier, vol. 1(4), pages 404-418.
    19. Kayode Olaide & Beatrice D. Simo-Kengne & Josine Uwilingiye, 2022. "Sustainable Development–Fiscal Federalism Nexus: A “Beyond GDP” Approach," Sustainability, MDPI, vol. 14(10), pages 1-37, May.
    20. Manh‐Tien Bui & Thai‐Ha Le & Donghyun Park, 2023. "Impacts of fiscal decentralization on local development in Vietnam: A disaggregated analysis," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(1), pages 3-31, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003534. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.