The Economic Consequences of Political Hierarchy: Evidence from Regime Changes in China, 1000-2000 C.E.

Abstract

We study how political hierarchy shapes regional development in China, using variations driven by regime changes during the 1000–2000 period. We find that changes in the status of the provincial capital led to the rise and decline of different prefectures as measured by population and urbanization. Two other novel findings stand out: (1) the economic advantages of the provincial capitals did not persist if they lost their political status, and (2) political hierarchy shaped economic development not only through public employment but also through the development of important infrastructure, such as transportation networks. Our findings highlight the importance of politics in determining the locations of economic activities.

Political hierarchy spillovers: Evidence from China

“…Chen et al (2017) find that political favoritism helps cities with more advanced hierarchies grow faster in China's political hierarchy by paying a lower capital price. In addition, cities with more advanced hierarchies have more access to economic resources and administrative power(Bai & Jia, 2021;Tang & Hewings, 2017). 3 The SCM has been used to evaluate the effect of reforms and specific policies, such as the California tobacco control program(Abadie et al, 2010), the EU cohesion policy(Barone et al, 2016), German reunification(Abadie et al, 2015), spillovers from universities(Liu, 2015), economic liberalization(Billmeier & Nannicini, 2013), the Tourism Development Policy(Castillo et al, 2017), and energy policy(Ando, 2015).4 FigureA2demonstrates that transfer payments per capita are positively related to TFP at the city level.5 The neighboring transfer payments per capita of a city could be positively related to its total factor productivity, as shown in FigureA3.6 See details in https://info.ceicdata.com/en-products-china-premium-database.7 Each satellite observes every location on the planet each night at a time between 8:30 and 10:00 p.m. local time(Henderson et al, 2012).…”

“…(2017) find that political favoritism helps cities with more advanced hierarchies grow faster in China's political hierarchy by paying a lower capital price. In addition, cities with more advanced hierarchies have more access to economic resources and administrative power (Bai & Jia, 2021; Tang & Hewings, 2017).…”