Political Factions, Local Accountability and Economic Performance: Evidence from Chinese Provinces

Principal Investigator: Hanming Fang, Class of 1965 Professor Economics, School of Arts and Sciences

Lead School: School of Arts and Sciences (Department of Economics)

Chinese Partners: Peking University, Shandong University

Other Partners: World Bank

Project Abstract

There is an extensive literature aimed at understanding the causes of the cross-country differences in economic growth rates, emphasizing the roles of institutions, infrastructure, human capital, culture, etc. But the existing literature does not explain vast differences in the economic performances within much smaller geographical units in the same country or even in the same province. However, in the data Fang et al. have collected from Fujian province in China, the annual economic growth rates between 1978 and 1998 ranged from 1.5% per year to 22.5% per year across its 59 counties, and this is robust to the controls of distance to the coast, and the fraction of mountainous areas in the county. What explains the huge disparities in their economic performance? This project investigates the role of political factions and local accountability in explaining the variations in economic performance across counties in different provinces in China.

The mechanism the project explores, both theoretially and empirically, is follows: When the Communist armies took over Fujian from the Nationalist control circa 1949, cadres from different army factions, in particular the Third Field Army (FA3) and the Yangtze-River Detachment (YRD), were assigned to different counties. Local leaders’ incentives regarding economic development depend on whether they are from the same army faction as the dominant factions in the provincial government. If they are from the same faction, then the local leader is less likely to pursue policies that are friendly to local economic development, because their political survival depends more on their royalty to the provincial leader. On the other hand, if the local leader is from a different faction than the provincial leader, then his political survival is more based on the local grassroot support, which can best secured if he focuses on local economic development.

The project will also extend the analysis to Zhejiang and Guangdong provinces, both of which share the same feature as Fujian province in that at least two branches of the Communist armies took leadership roles in different counties after 1949.