The Political Resource Blessing or Curse? Patronage Networks, Infrastructure Investment, and Economic Development in China

Abstract

Does the patron-client connection between local governments and their superiors improve or hurt the local economic development? Although recent research suggests that patron-client connections boost local economic performance, this paper investigates the potential costs and risks of connection-driven economic development. With a difference-in-differences design applied to Chinese prefecture-level cities, I find that politically connected cities were more likely to win their superior's support to obtain the projects approved by the four-trillion-Yuan stimulus enacted in 2008 and increased the city's public investment in infrastructure. Meanwhile, these politically connected cities accumulated more public debts than other unconnected cities. Furthermore, those cities that lacked such political connections were more likely to promote private investment by introducing business-friendly policies. These results show that patron-client connections make an economic development model that features government investment and public debts more possible than the one that depends on vibrant entrepreneurship and private investment.

Keywords: China, Corruption and Patronage, Economic Policy, Intergovernmental Relations, Political Economy