IDEAS home Printed from https://ideas.repec.org/a/wly/ectrin/v33y2025i2p339-368.html
   My bibliography  Save this article

Balancing act: Examining the trade‐offs between regional convergence and economic growth in China's province managing county reform

Author

Listed:
  • Tahir Yousaf

Abstract

The study examines the relationship between regional convergence, economic growth and government hierarchies, with a specific focus on the province managing county (PMC) reform policy in China. The motivation for this research stems from the observation that a substantial portion of the increased inequality in China is attributable to disparities at the county level. This underscores the necessity for policies that address regional inequalities at the county level while simultaneously promoting sustained economic growth. We employ a time‐varying quasi‐natural experiment to explore how this reform has influenced regional convergence and economic growth within the sample period. The outcomes reveal that the PMC reform had a detrimental impact on regional convergence, hindering it by an average of 2.6%, while economic growth received a modest increase of 0.36%. The study also reveals notable heterogeneity in the effects of the reform, contracted disparities in western region, alongside exhibiting widened disparities and higher growth in eastern & central region. The study also investigates the underlying mechanisms, finding that expenditures on basic provisions reduced, while county revenue and investment expenditures increased following the policy change. It proposes that the increased investment in capital expenditures stimulated economic growth but came at the cost of hindering regional convergence.

Suggested Citation

  • Tahir Yousaf, 2025. "Balancing act: Examining the trade‐offs between regional convergence and economic growth in China's province managing county reform," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 33(2), pages 339-368, April.
  • Handle: RePEc:wly:ectrin:v:33:y:2025:i:2:p:339-368
    DOI: 10.1111/ecot.12433
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ecot.12433
    Download Restriction: no

    File URL: https://libkey.io/10.1111/ecot.12433?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
    ---><---

    References listed on IDEAS

    as
    1. Shaoda Wang & David Y. Yang, 2021. "Policy Experimentation in China: the Political Economy of Policy Learning," NBER Working Papers 29402, National Bureau of Economic Research, Inc.
    2. Weiming Li & Zhaoyang Cai & Shixiong Cao, 2021. "What has caused regional income inequality in China? Effects of 10 socioeconomic factors on per capita income," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(9), pages 13403-13417, September.
    3. Andrés Rodríguez-Pose & Roberto Ezcurra, 2010. "Does decentralization matter for regional disparities? A cross-country analysis," Journal of Economic Geography, Oxford University Press, vol. 10(5), pages 619-644, September.
    4. Richard Blundell & Monica Costa Dias, 2009. "Alternative Approaches to Evaluation in Empirical Microeconomics," Journal of Human Resources, University of Wisconsin Press, vol. 44(3).
    5. Qiao, Baoyun & Martinez-Vazquez, Jorge & Xu, Yongsheng, 2008. "The tradeoff between growth and equity in decentralization policy: China's experience," Journal of Development Economics, Elsevier, vol. 86(1), pages 112-128, April.
    6. Calin Arcalean & Gerhard Glomm & Ioana Schiopu & Jens Suedekum, 2010. "Public budget composition, fiscal (de)centralization, and welfare," Canadian Journal of Economics, Canadian Economics Association, vol. 43(3), pages 832-859, August.
    7. Liu, Yongzheng & Alm, James, 2016. "“Province-Managing-County” fiscal reform, land expansion, and urban growth in China," Journal of Housing Economics, Elsevier, vol. 33(C), pages 82-100.
    8. Martinez-Vazquez, Jorge & McNab, Robert M., 2003. "Fiscal Decentralization and Economic Growth," World Development, Elsevier, vol. 31(9), pages 1597-1616, September.
    9. Brülhart, Marius & Parchet, Raphaël, 2014. "Alleged tax competition: The mysterious death of bequest taxes in Switzerland," Journal of Public Economics, Elsevier, vol. 111(C), pages 63-78.
    10. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(1), pages 173-222.
    11. Eliana La Ferrara & Alberto Chong & Suzanne Duryea, 2012. "Soap Operas and Fertility: Evidence from Brazil," American Economic Journal: Applied Economics, American Economic Association, vol. 4(4), pages 1-31, October.
    12. Zhang, Xiaobo, 2006. "Fiscal decentralization and political centralization in China: Implications for growth and inequality," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 713-726, December.
    13. Dave Donaldson & Adam Storeygard, 2016. "The View from Above: Applications of Satellite Data in Economics," Journal of Economic Perspectives, American Economic Association, vol. 30(4), pages 171-198, Fall.
    14. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64(5), pages 416-416.
    15. Chanda, Areendam & Kabiraj, Sujana, 2020. "Shedding light on regional growth and convergence in India," World Development, Elsevier, vol. 133(C).
    16. Hongbin Cai & Daniel Treisman, 2005. "Does Competition for Capital Discipline Governments? Decentralization, Globalization, and Public Policy," American Economic Review, American Economic Association, vol. 95(3), pages 817-830, June.
    17. Guanchun Liu & Jianbo Song & Chengsi Zhang, 2022. "Fiscal transfers and economic convergence: Evidence from China," The World Economy, Wiley Blackwell, vol. 45(9), pages 2924-2949, September.
    18. 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.
    19. J. Vernon Henderson & Adam Storeygard & David N. Weil, 2012. "Measuring Economic Growth from Outer Space," American Economic Review, American Economic Association, vol. 102(2), pages 994-1028, April.
    20. Lv, Bingyang & Liu, Yongzheng & Li, Yan, 2020. "Fiscal incentives, competition, and investment in China," China Economic Review, Elsevier, vol. 59(C).
    21. Bo, Shiyu, 2020. "Centralization and regional development: Evidence from a political hierarchy reform to create cities in china," Journal of Urban Economics, Elsevier, vol. 115(C).
    22. 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).
    23. 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.
    24. Junxue Jia & Jing Ning & Jing Zhang, 2023. "Information transparency, monitoring, and incentives under decentralization: Evidence from China's fiscal reform of “province managing county”," Journal of Regional Science, Wiley Blackwell, vol. 63(2), pages 263-289, March.
    25. 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.
    26. 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.
    27. Ciro Biderman & JoãoMP DeMello & Alexandre Schneider, 2010. "Dry Laws and Homicides: Evidence from the São Paulo Metropolitan Area," Economic Journal, Royal Economic Society, vol. 120(543), pages 157-182, March.
    28. Iris Claus & Les Oxley & Chen Wang & Guanghua Wan & Dan Yang, 2014. "Income Inequality In The People'S Republic Of China: Trends, Determinants, And Proposed Remedies," Journal of Economic Surveys, Wiley Blackwell, vol. 28(4), pages 686-708, September.
    29. 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.
    30. Jia, Junxue & Ding, Siying & Liu, Yongzheng, 2020. "Decentralization, incentives, and local tax enforcement," Journal of Urban Economics, Elsevier, vol. 115(C).
    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. Qurat ul Ain, 2025. "Optimizing China's economic performance through government hierarchy restructuring," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 33(2), pages 487-516, April.
    2. Yixin Chen & Bingyang Lyu & Guangrong Ma, 2024. "Revenue sharing, fiscal incentives, and economic growth: Evidence from China," Kyklos, Wiley Blackwell, vol. 77(1), pages 149-183, February.
    3. Yongzheng Liu & Jorge Martinez-Vazquez & Alfred M. Wu, 2017. "Fiscal decentralization, equalization, and intra-provincial inequality in China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 248-281, April.
    4. Li, Lei & Luo, Changtuo, 2023. "Does administrative decentralization promote outward foreign direct investment and productivity? Evidence from China," Economic Modelling, Elsevier, vol. 124(C).
    5. Bibek Adhikari & Saroj Dhital, 2021. "Decentralization and regional convergence: Evidence from night‐time lights data," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1066-1088, July.
    6. Tahir Yousaf & Muhammad Faisal Shahzad & Qurat ul Ain, 2025. "Evaluating the environmental impacts of Chinese decentralization policies toward SDG 13," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(1), pages 939-956, February.
    7. Anping Chen & Nicolaas Groenewold, 2013. "The national and regional effects of fiscal decentralisation in China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 51(3), pages 731-760, December.
    8. Jin, Haizhen, 2023. "Effects of decentralization on firm performance: Evidence from Chinese county-level quasi-experiments," Economic Modelling, Elsevier, vol. 119(C).
    9. Bo, Shiyu & Wu, Yiping & Zhong, Lingna, 2020. "Flattening of government hierarchies and misuse of public funds: Evidence from audit programs in China," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 141-151.
    10. Xiang, Xunyong & Luo, Wenjie & Li, Bin & Liang, Wenquan, 2025. "Decentralized government and firm pollution discharges: Evidence from China’s Province-Managing-County reform," Economic Modelling, Elsevier, vol. 144(C).
    11. 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.
    12. Leonardo Letelier S. & Héctor Ormeño, 2018. "El mapa de la descentralización fiscal en Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 21(3), pages 004-040, December.
    13. Andrés Rodríguez-Pose & Vinko Muštra, 2022. "The economic returns of decentralisation: Government quality and the role of space," Environment and Planning A, , vol. 54(8), pages 1604-1622, November.
    14. Lu Ming & Zhao Chen & Yongqin Wang & Yan Zhang & Yuan Zhang & Changyuan Luo, 2013. "China’s Economic Development," Books, Edward Elgar Publishing, number 14502.
    15. Reingewertz, Yaniv, 2014. "Fiscal Decentralization - a Survey of the Empirical Literature," MPRA Paper 59889, University Library of Munich, Germany.
    16. Jia, Junxue & Guo, Qingwang & Zhang, Jing, 2014. "Fiscal decentralization and local expenditure policy in China," China Economic Review, Elsevier, vol. 28(C), pages 107-122.
    17. Qiao, Mo & Ding, Siying & Liu, Yongzheng, 2019. "Fiscal decentralization and government size: The role of democracy," European Journal of Political Economy, Elsevier, vol. 59(C), pages 316-330.
    18. Jingyuan Yu & Shuai Chen & Linmu Li, 2025. "Reform of government level and local environmental pollution: evidence from China," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 27(2), pages 3609-3628, February.
    19. Jia, Junxue & Ding, Siying & Liu, Yongzheng, 2020. "Decentralization, incentives, and local tax enforcement," Journal of Urban Economics, Elsevier, vol. 115(C).
    20. Longjin Chen & Jian Huang & Jianjun Li, 2017. "Fiscal Decentralization, Satisfaction with Social Services, and Inequality Under the Hukou System," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 132(1), pages 377-394, May.

    More about this item

    Statistics

    Access and download statistics

    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:wly:ectrin:v:33:y:2025:i:2:p:339-368. 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: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)2577-6983 .

    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.