Dynamic Career Incentive Versus Policy Rent-Seeking in Institutionalized Authoritarian Regimes: Testing a Long-Run Model of Trade Policy Determination in China
Posted: 22 May 2014 Last revised: 24 May 2014
Date Written: August 18, 2011
This paper studies the effect of political elite's career incentive on China's trade policy formation. The conventional wisdom in both the China field and the political economy literature predicts that trade policy rents tend to be doled out by leaders to those political elite who enjoy close political relationship such as factional ties with them. This view, however, fails to appreciate analytically that, in a highly institutionalized autocratic state like China, in addition to giving out policy favors, autocratic leaders also enjoy access to another source of rents, promotion in authoritarian institutions. In other words, instead of viewing political elite's policy preferences from a static perspective (as suggested by the standard fragmented authoritarian framework), we should adopt a dynamic interpretation where autocratic leaders can change the policy preferences of their selectorate by offering them promotion opportunities within the authoritarian hierarchy as long as they can credibly commit to these political promises. We therefore hypothesize that sectoral political elite's decisions to lobby for trade policy favors are determined by the credibility of leaders' promotion promises. When the top leaders are able to make credible commitments to their promises, political elite will then cooperate with them and choose not to engage in lobbying activities. By contrary, if the former fail to do so, then the latter will act according to their own sectoral interests. This study tests this idea with a completely new dataset with 66 sectors between 1998 and 2009, and, in particular, a new political variable capturing political elite's promotion expectations and leaders' credibility is used to identify the effect of career incentive on China's trade policy determination. We choose a panel data endogenous switching regression model to test this long-run model from the endogenous lobby formation process to the endogenous determination of China's tariff policy, and the estimated structural parameters also support the idea that it is less likely for a sector with higher promotion expectation score to get organized and political organization has a causal impact on China's tariff patterns.
Keywords: Career Effect, China's Trade Policy, Commitment Problem, Lobbying
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