Tournament-style political competition and local protectionism: Theory and evidence from China

Hanming Fang, Ming Li and Zenan Wu

Journal of Public Economics, 2025, vol. 248, issue C

Abstract: We argue that interjurisdictional 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 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 fewer government procurement contracts to firms in the competing city; second, local firms, especially local state-owned enterprises (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.

Keywords: Political competition; Local protectionism; Government procurement; Firm investment. (search for similar items in EconPapers)
JEL-codes: H11 H70 P30 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:248:y:2025:i:c:s0047272725001197

DOI: 10.1016/j.jpubeco.2025.105421

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