IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/8594.html
   My bibliography  Save this paper

The Incentive Role of Creating "Cities" in China

Author

Listed:
  • Li, Lixing

Abstract

This paper examines a distinctive mechanism of providing incentives to local governments – upgrading counties to "cities". In China, awarding city status to existing counties is the dominant way of creating new urban administrative units, during which the local government gets many benefits. Using a large panel data set covering all counties in China during 1993-2004, I investigate the determinants of upgrading. I find that the official minimum requirements for upgrading are not enforced in practice. Instead, economic growth rate plays a key role in obtaining city status. An empirical test is then conducted to distinguish between a principal-agent incentive mechanism and political bargaining. The findings are consistent with the hypothesis that the central government uses upgrading to reward local officials for high growth, as well as aligning local interests with those of the center. This paper highlights the importance of both fiscal and political incentives facing the local government. The comparison between incentive mechanism and bargaining sheds light on an important question about China’s politics of governance: where does power lie in China?

Suggested Citation

  • Li, Lixing, 2008. "The Incentive Role of Creating "Cities" in China," MPRA Paper 8594, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:8594
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/8594/1/MPRA_paper_8594.pdf
    File Function: original version
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bai, Chong-En & Tao, Zhigang & Tong, Yueting Sarah, 2008. "Bureaucratic integration and regional specialization in China," China Economic Review, Elsevier, vol. 19(2), pages 308-319, June.
    2. Au, Chun-Chung & Henderson, J. Vernon, 2006. "How migration restrictions limit agglomeration and productivity in China," Journal of Development Economics, Elsevier, vol. 80(2), pages 350-388, August.
    3. Deng, Xiangzheng & Huang, Jikun & Rozelle, Scott & Uchida, Emi, 2008. "Growth, population and industrialization, and urban land expansion of China," Journal of Urban Economics, Elsevier, vol. 63(1), pages 96-115, January.
    4. repec:hrv:faseco:4553034 is not listed on IDEAS
    5. Lichtenberg, Erik & Ding, Chengri, 2009. "Local officials as land developers: Urban spatial expansion in China," Journal of Urban Economics, Elsevier, vol. 66(1), pages 57-64, July.
    6. Janet Currie & Matthew Neidell, 2005. "Air Pollution and Infant Health: What Can We Learn from California's Recent Experience?," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 1003-1030.
    7. 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.
    8. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Reserving Market Incentives," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 83-92, Fall.
    9. Sridhar, Kala Seetharam & Wan, Guanghua, 2010. "Firm location choice in cities: Evidence from China, India, and Brazil," China Economic Review, Elsevier, vol. 21(1), pages 113-122, March.
    10. 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.
    11. Li, Hongbin & Zhou, Li-An, 2005. "Political turnover and economic performance: the incentive role of personnel control in China," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1743-1762, September.
    12. Zhang, Tao & Zou, Heng-fu, 1998. "Fiscal decentralization, public spending, and economic growth in China," Journal of Public Economics, Elsevier, pages 221-240.
    13. Naritomi, Joana & Soares, Rodrigo R. & Assunção, Juliano J., 2012. "Institutional Development and Colonial Heritage within Brazil," The Journal of Economic History, Cambridge University Press, vol. 72(02), pages 393-422, June.
    14. Joana Naritomi & Rodrigo R. Soares & Juliano J. Assunção, 2007. "Rent Seeking and the Unveiling of 'De Facto' Institutions: Development and Colonial Heritage within Brazil," NBER Working Papers 13545, National Bureau of Economic Research, Inc.
    15. 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.
    16. Chen, Ye & Li, Hongbin & Zhou, Li-An, 2005. "Relative performance evaluation and the turnover of provincial leaders in China," Economics Letters, Elsevier, vol. 88(3), pages 421-425, September.
    17. Anderson, Gordon & Ge, Ying, 2005. "The size distribution of Chinese cities," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 756-776, November.
    18. Chun-Chung Au & J. Vernon Henderson, 2006. "Are Chinese Cities Too Small?," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 549-576.
    19. Van de Ven, Wynand P. M. M. & Van Praag, Bernard M. S., 1981. "The demand for deductibles in private health insurance : A probit model with sample selection," Journal of Econometrics, Elsevier, vol. 17(2), pages 229-252, November.
    20. Alberto Alesina & Reza Baqir & Caroline Hoxby, 2004. "Political Jurisdictions in Heterogeneous Communities," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 348-396, April.
    21. Rawski, Thomas G. & Xiao, Wei, 2001. "Roundtable on Chinese Economic Statistics Introduction," China Economic Review, Elsevier, vol. 12(4), pages 298-302.
    22. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    23. Henderson, Vernon & Becker, Randy, 2000. "Political Economy of City Sizes and Formation," Journal of Urban Economics, Elsevier, vol. 48(3), pages 453-484, November.
    24. Christine C.P. Wong & Richard M. Bird, 2005. "China?s Fiscal System: A Work in Progress," International Tax Program Papers 0515, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
    25. Richard Bird & Christine C.P.Wong, 2005. "China's Fiscal System: A Work in Progress (2005)," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0520, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    26. Tsui, Kai-yuen, 2005. "Local tax system, intergovernmental transfers and China's local fiscal disparities," Journal of Comparative Economics, Elsevier, vol. 33(1), pages 173-196, March.
    27. Cai, Hongbin & Treisman, Daniel, 2004. "State corroding federalism," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 819-843, March.
    28. Ekaterina Zhuravskaya, 2007. "Whither Russia? A Review of Andrei Shleifer's A Normal Country," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 127-146, March.
    29. Yasheng Huang, 2002. "Managing Chinese Bureaucrats: An Institutional Economics Perspective," Political Studies, Political Studies Association, vol. 50(1), pages 61-79, March.
    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. repec:eee:apmaco:v:311:y:2017:i:c:p:375-389 is not listed on IDEAS
    2. repec:eee:spacre:v:19:y:2016:i:2:p:252-260 is not listed on IDEAS
    3. 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.
    4. Xu, Cheng-Gang, 2010. "The Institutional Foundations of China’s Reforms and Development," CEPR Discussion Papers 7654, C.E.P.R. Discussion Papers.
    5. 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.
    6. Caldeira, Emilie, 2012. "Yardstick competition in a federation: Theory and evidence from China," China Economic Review, Elsevier, vol. 23(4), pages 878-897.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. Mukim,Megha & Zhu,Tingting Juni, 2015. "Empowering cities : good for growth ? evidence from China," Policy Research Working Paper Series 7193, The World Bank.

    More about this item

    Keywords

    economic growth; incentive mechanism; bargaining; political centralization; fiscal decentralization; county-to-city upgrading; central-local relationship;

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:pra:mprapa:8594. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.