The Revealed Preference of the Chinese Communist Party Leadership: Investing in Local Economic Development versus Rewarding Social Connections

Matthew Kahn, Weizeng Sun, Jianfeng Wu () and Siqi Zheng

No 24457, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Over the last 30 years, the Chinese government has invested in new industrial parks with the intent of stimulating urban economic growth. The central government delegates the site selection decision to provincial leaders. A principal-agent issue arises because the central government prioritizes efficiency and equity criteria while the provincial leader may allocate such place based investments to reward socially connected mayors. We present a revealed preference test of industrial park site selection and document the willingness of China’s provincial leaders to sacrifice economic development in order to reward social connections. We examine the causes and consequences of this misallocation of capital.

JEL-codes: R5 R53 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-cna and nep-tra
Note: PE POL
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