IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v15y2023i8p6363-d1118510.html
   My bibliography  Save this article

Political Hierarchy and Long-Term Effects on TFP: Evidence from a Provincial Elevation in China

Author

Listed:
  • Wenjie Hu

    (School of Economics, Renmin University of China, Beijing 100872, China)

  • Yuguang Yang

    (School of Economics, Renmin University of China, Beijing 100872, China)

Abstract

This paper examines the effects of political hierarchy on firms’ long-term total factor productivity using evidence from the elevation of Chongqing to provincial-level government in China. Using the elevation as an exogenous shock and the Sichuan-Chongqing border as a dividing line, we utilized the spatial regression discontinuity approach to identify the causal link. We found that before Chongqing’s elevation to a provincial-level municipality, the TFP of Chongqing firms was not significantly different from that of Sichuan firms, but after the elevation, the TFP of Chongqing firms near the border was significantly lower than that of Sichuan firms. The mechanism analysis shows that the land transaction price in Chongqing is significantly lower than that in Sichuan Province, which leads to an abundance of low-productivity firms and the “crowding out” of high-productivity firms. We also found that government intervention in Chongqing exacerbates the degree of resource misallocation at the firm level, which together lead to a decline in firm TFP.

Suggested Citation

  • Wenjie Hu & Yuguang Yang, 2023. "Political Hierarchy and Long-Term Effects on TFP: Evidence from a Provincial Elevation in China," Sustainability, MDPI, vol. 15(8), pages 1-18, April.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:8:p:6363-:d:1118510
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/15/8/6363/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/15/8/6363/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Maximilian v. Ehrlich & Tobias Seidel, 2018. "The Persistent Effects of Place-Based Policy: Evidence from the West-German Zonenrandgebiet," American Economic Journal: Economic Policy, American Economic Association, vol. 10(4), pages 344-374, November.
    2. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    3. Grossman, Guy & Lewis, Janet I., 2014. "Administrative Unit Proliferation," American Political Science Review, Cambridge University Press, vol. 108(1), pages 196-217, February.
    4. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    5. Andrew Gelman & Guido Imbens, 2019. "Why High-Order Polynomials Should Not Be Used in Regression Discontinuity Designs," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(3), pages 447-456, July.
    6. Jia, Junxue & Liang, Xuan & Ma, Guangrong, 2021. "Political hierarchy and regional economic development: Evidence from a spatial discontinuity in China," Journal of Public Economics, Elsevier, vol. 194(C).
    7. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    8. Sebastian Calonico & Matias D. Cattaneo & Max H. Farrell & Roc ́ıo Titiunik, 2017. "rdrobust: Software for regression-discontinuity designs," Stata Journal, StataCorp LP, vol. 17(2), pages 372-404, June.
    9. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
    Full references (including those not matched with items on IDEAS)

    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. Aghion, Philippe & Akcigit, Ufuk & Howitt, Peter, 2014. "What Do We Learn From Schumpeterian Growth Theory?," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 0, pages 515-563, Elsevier.
    2. Ezra Oberfield & Devesh Raval, 2021. "Micro Data and Macro Technology," Econometrica, Econometric Society, vol. 89(2), pages 703-732, March.
    3. Hasan, Rana & Jiang, Yi & Rafols, Radine Michelle, 2021. "Place-based preferential tax policy and industrial development: Evidence from India’s program on industrially backward districts," Journal of Development Economics, Elsevier, vol. 150(C).
    4. Ufuk Akcigit & Salomé Baslandze & Francesca Lotti, 2023. "Connecting to Power: Political Connections, Innovation, and Firm Dynamics," Econometrica, Econometric Society, vol. 91(2), pages 529-564, March.
    5. Daan Freeman & Leon Bettendorf & Harro van Heuvelen & Gerdien Meijerink, 2021. "The contribution of business dynamics to productivity growth in the Netherlands," CPB Discussion Paper 427, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Thomas Grebel & Mauro Napoletano & Lionel Nesta, 2023. "Distant but Close in Sight: Firm‐level Evidence on French–German Productivity Gaps in Manufacturing," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 69(1), pages 228-261, March.
    7. Enghin Atalay, 2014. "Materials Prices And Productivity," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 575-611, June.
    8. Fontanelli, Luca & Guerini, Mattia & Napoletano, Mauro, 2023. "International trade and technological competition in markets with dynamic increasing returns," Journal of Economic Dynamics and Control, Elsevier, vol. 149(C).
    9. Alistair Dieppe, 2021. "Global Productivity," World Bank Publications - Books, The World Bank Group, number 34015, December.
    10. Jakub Grossmann & Štĕpán Jurajda & Felix Roesel, 2021. "Forced Migration, Staying Minorities, and New Societies: Evidence from Post-War Czechoslovakia," CESifo Working Paper Series 8950, CESifo.
    11. Van Reenen, John, 2011. "Does competition raise productivity through improving management quality?," International Journal of Industrial Organization, Elsevier, vol. 29(3), pages 306-316, May.
    12. Fang, Mingyue, 2014. "先天优势还是后天努力？——国企级别对全要素生产率影响的实证研究 [Innate Advantages or Hard Work? An Empirical Study on the Impacts of SOEs’ Administrative Level on Total Factor Productivity]," MPRA Paper 60439, University Library of Munich, Germany.
    13. Chen, Minjie & Heerink, Nico & Zhu, Xueqin & Feng, Shuyi, 2021. "Do Small Farm Sizes Imply Large Resource Misallocation? Evidence from Wheat-Maize Double Cropping Farms in the North China Plain," 2021 Conference, August 17-31, 2021, Virtual 315141, International Association of Agricultural Economists.
    14. Figal Garone, Lucas & López Villalba, Paula A. & Maffioli, Alessandro & Ruzzier, Christian A., 2020. "Firm-level productivity in Latin America and the Caribbean," Research in Economics, Elsevier, vol. 74(2), pages 186-192.
    15. Christian Ochsner, 2023. "Hostility, Population Sorting, and Backwardness: Quasi-Experimental Evidence from the Red Army after WWII," CERGE-EI Working Papers wp768, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    16. Chen, Minjie & Heerink, Nico & Zhu, Xueqin & Feng, Shuyi, 2022. "Do small and equally distributed farm sizes imply large resource misallocation? Evidence from wheat-maize double-cropping in the North China Plain," Food Policy, Elsevier, vol. 112(C).
    17. Jia, Junxue & Liang, Xuan & Ma, Guangrong, 2021. "Political hierarchy and regional economic development: Evidence from a spatial discontinuity in China," Journal of Public Economics, Elsevier, vol. 194(C).
    18. Ian Goldin & Pantelis Koutroumpis & François Lafond & Julian Winkler, 2024. "Why Is Productivity Slowing Down?," Journal of Economic Literature, American Economic Association, vol. 62(1), pages 196-268, March.
    19. Albanese, Giuseppe & Barone, Guglielmo & de Blasio, Guido, 2022. "Populist voting and losers’ discontent: Does redistribution matter?," European Economic Review, Elsevier, vol. 141(C).
    20. Loredana Fattorini & Mahdi Ghodsi & Armando Rungi, 2020. "Cohesion Policy Meets Heterogeneous Firms," Journal of Common Market Studies, Wiley Blackwell, vol. 58(4), pages 803-817, July.

    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:gam:jsusta:v:15:y:2023:i:8:p:6363-:d:1118510. 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: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    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.