What Role Does the Political Environment Play in Economic Development? ¡ªA Case Study of Fujian Province

Jingwen Yu () and Chunchao Wang ()
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Jingwen Yu: School of Economics, Fudan University, Shanghai 200433, China
Chunchao Wang: Department of Economics, Jinan University, Guangzhou 510632, China

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2012, vol. 7, issue 4, 544-559

Abstract: Uncertainty induced by the political environment affects investment risk, and thus affects investment decisions, which have a close relationship with economic development. This paper investigates the economic cost of political instability using the case study of the tense relationship across-Strait in China. We use a synthetic control method to better model the counterfactual analysis of this case study. The intense situation of the relations across-Strait has great influence on the economic development of Fujian province. Fujian province is the closest province in proximity to Taiwan and also possesses the greatest preferential policies for Taiwanese direct investment. The empirical results of this study reveal that during 2001-2008 Fujian province¡¯s average annual loss in GDP per capita was 682.54 yuan. In other words, GDP per capita in Fujian has declined about 12.1 percent annually during this period compared with GDP per capita as calculated by the synthetic control method.

Keywords: political environment; economic development; synthetic control method; cross-straits relations (search for similar items in EconPapers)
JEL-codes: O12 (search for similar items in EconPapers)
Date: 2012
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