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

33 Pages Posted: 2 Apr 2018

See all articles by Matthew E. Kahn

Matthew E. Kahn

University of Southern California; National Bureau of Economic Research (NBER)

Weizeng Sun

Tsinghua University

Jianfeng Wu

Fudan University

Siqi Zheng

Massachusetts Institute of Technology (MIT) - Department of Urban Studies & Planning

Date Written: March 2018

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.

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Suggested Citation

Kahn, Matthew E. and Sun, Weizeng and Wu, Jianfeng and Zheng, Siqi, The Revealed Preference of the Chinese Communist Party Leadership: Investing in Local Economic Development Versus Rewarding Social Connections (March 2018). NBER Working Paper No. w24457. Available at SSRN: https://ssrn.com/abstract=3154241

Matthew E. Kahn (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Weizeng Sun

Tsinghua University ( email )

No Address Available

Jianfeng Wu

Fudan University

Siqi Zheng

Massachusetts Institute of Technology (MIT) - Department of Urban Studies & Planning ( email )

77 Massachusetts Avenue
Cambridge, MA 02139
United States

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