How Local Leadership Rotation Breaks State-Business Ties in China

46 Pages Posted: 27 Jul 2020

See all articles by Yue Hou

Yue Hou

Department of Political Science, University of Pennsylvania

Siyao Li

University of Pennsylvania

Date Written: July 1, 2020

Abstract

Economic decentralization, while increasing regional autonomy in developing the economy, also increases the risk of government-business collusion and local capture. We argue that in authoritarian regimes, local leadership rotation mitigates collusion through breaking local government ties with business. We further propose that the nature of state-business ties is heterogeneous, with institutional government-business ties more stable, and personal government-business ties more easily broken. We test our theory in the context of local leadership turnovers and firm subsidies in China in the wake of the 2008 fiscal stimulus program. Using data from publicly listed firms, we find that new provincial governors, immediately after taking office, distribute significantly less subsidies to private enterprises. We also present suggestive evidence that governors have career incentives to distribute subsidies towards state-owned enterprises early in their tenure. Our findings illustrate that leadership rotation presents a partial solution to the problem of local capture in the absence of elections.

Suggested Citation

Hou, Yue and Li, Siyao, How Local Leadership Rotation Breaks State-Business Ties in China (July 1, 2020). Available at SSRN: https://ssrn.com/abstract=3640646 or http://dx.doi.org/10.2139/ssrn.3640646

Yue Hou (Contact Author)

Department of Political Science, University of Pennsylvania ( email )

133 S. 36th St.
University of Pennsylvania
Philadelphia, PA 19104
United States

HOME PAGE: http://yue-hou.com

Siyao Li

University of Pennsylvania

Philadelphia, PA 19104
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
21
Abstract Views
175
PlumX Metrics