Working Paper: NBER ID: w25839
Authors: Chongen Bai; Changtai Hsieh; Zheng Michael Song
Abstract: Chinese local governments wield their enormous political power and administrative capacity to provide “special deals” for favored private firms. We argue that China’s extraordinary economic growth comes from these special deals. Local political leaders do so because they derive personal benefits, either political or monetary, from providing special deals. Competition between local governments limits the predatory effects of special deals.
Keywords: China; Economic Growth; Local Governments; Special Deals; Private Firms
JEL Codes: E02; F00; N00; P00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local government competition (H73) | better outcomes for firms receiving special deals (L14) |
| local political leaders provide special deals to favored private firms (R38) | enhances firms' growth (L25) |
| administrative capacity of local governments (H70) | enhances firms' growth (L25) |
| competition among local governments (H73) | limits predatory nature of special deals (L42) |
| special deals (L14) | positive effect on economic growth (O49) |
| local governments incentivize firms to perform better (H70) | drives economic development (O29) |
| special deals (L14) | inequities in access to resources and market opportunities (F63) |