Rulers’ agents: Localism of law enforcement leaders and the patterns of trade

Institution serves a source of comparative advantage. This paper focuses on a particular top provincial official in China, the secretary of Party Political-Legal Committee (PLC), an apparatus that oversees all legal affairs including courts, police forces, and prosecution offices, and examines how the appointment of local PLC secretaries, who are promoted from low to high ranks within a single province, shapes the patterns of trade across Chinese provinces. We find that provinces with a local PLC secretary are less likely to specialize in industries whose production depends on contracting institutions, while having a local party secretary or governor does not produce similar patterns. The identification exploits the variation in the relationship with central PLC secretaries and a shock to members of the Politburo Standing Committee in 2012. Moreover, the presence of local PLC secretaries intensifies corruption, deteriorates the business environment, and eliminates societal trust on the judicial system. Combining a novel dataset of intellectual property lawsuit cases, we show that the win rate of non-local plaintiffs against local defendants significantly declines when a local PLC secretary is in office. In addition, that the legal education background of PLC secretaries and the anti-corruption campaign mitigate the adverse effect. Our work underscores the importance of cadre rotation practice in the judicial system to curb localism.