Political Patronage, Infrastructure, and Economic Growth: Evidence from China
57 Pages Posted:
Date Written: March 18, 2020
How does political patronage influence investment in critical infrastructure and economic growth in the long term? With a difference-in-differences design applied to the setting of China, I show that cities whose leaders established patron-client connections with their provincial superiors during 2008-09 were more likely to invest in transportation infrastructure and their state-dominated manufacture sector was more likely to grow. Both findings persist even after the crisis is over, showing that political patronage networks during the financial crisis had a long-term impact on how cities pursue economic growth. By contrast, unconnected cities were more likely to improve the business environment to foster private entrepreneurship and attract investment and accumulated fewer public debts than connected cities. Taken together, although patronage-client connections during the financial crisis boosted infrastructure investment and stimulated the growth of state-owned industrial firms, such connections also stifled private entrepreneurship and accumulated massive government debts in the long term.
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