Working Paper: NBER ID: w24457
Authors: Matthew E. Kahn; Weizeng Sun; Jianfeng Wu; Siqi Zheng
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.
Keywords: Industrial Parks; Capital Misallocation; Social Connections; Economic Development; China
JEL Codes: R5; R53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| social connections (Z13) | probability of a city receiving a park (R53) |
| site selection decisions of provincial leaders (R53) | economic growth (O49) |
| social connections (Z13) | misallocation of capital (E22) |
| provincial GDP growth (O51) | likelihood of promotion for provincial leaders (J62) |
| income inequality (D31) | significance in long-term impacts of park placement (R53) |