Tournament-Style Political Competition and Local Protectionism: Theory and Evidence from China

Hanming Fang, Ming Li and Zenan Wu

No 30780, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We argue that inter-jurisdictional competition in a regionally decentralized authoritarian regime distorts local politicians’ incentives in resource allocation among firms from their own city and a competing city. We develop a tournament model of project selection that captures the driving forces of local protectionism. The model robustly predicts that the joint presence of regional spillover and the incentive for political competition leads to biased resource allocations against the competing regions. Combining several unique data sets, we test our model predictions in the context of government procurement allocation and firms' equity investment across Chinese cities. We find that, first, when local politicians are in more intensive political competition, they allocate less government procurement contracts to firms in the competing city; second, local firms, especially local SOEs, internalize the local politicians’ career concerns and invest less in the competing cities. Our paper provides a political economy explanation for inefficient local protectionism in an autocracy incentivized by tournament-style political competition.

JEL-codes: H11 H70 P30 (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-cna, nep-pol and nep-ure
Note: PE POL
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Tournament-Style Political Competition and Local Protectionism: Theory and Evidence from China (2022)
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