Ruling with Ideology: Politicians' Beliefs and Privatizations

Abstract

I study whether political ideology motivates economic decisions in authoritarian regimes. Based on belief formation mechanisms, I construct a novel ideology measure for Chinese provincial party secretaries and governors. I find that during China's privatization wave around 2000, a governor with an above-median communist belief privatized 2.8% fewer state-owned enterprises each year than his below-median-belief colleague. In contrast, the party secretary's ideology only had a moderate impact through indirect channels. Endogenous appointments and alternative explanations are unlikely to drive the results. I also find that firms privatized by more communist-minded governors, but not secretaries, achieve lower post-sale efficiency improvements. My paper suggests that ideology is a crucial element that drives economic decisions under authoritarianism. It also identifies politician's belief as a fundamental impetus for privatization and demonstrates ideology's substantial impact on corporate ownership structure.

Keywords: Privatization, Ownership Structure, Ideology, Political Economy, China

JEL Classification: G32, H11, L33, P31