Explaining regional economic policies in China: interest groups, institutions, and identities

Abstract

What explains variation in investment climates across China's provinces and urban autonomous regions? Three main explanations are considered: variation in the character and size of economic interest groups, in central government policies, and in pre-communist provincial identities and traditions. There is statistical and anecdotal support for the interest group and provincial identity factors. On the other hand, there is little evidence that variation in central government policy has had much effect. Future work should refine statistical tests and case studies to better understand the joint influence of interest group pressures and provincial identities.

Regional Decentralisation and Location of Foreign Direct Investment in China

“…On the one hand, it forces local governments to create a friendly investment environment to attract new businesses and improve the production efficiency of existing firms to increase local revenue. If the budget constraint is soft or local governments can easily secure fiscal transfers from the central government, they will have no incentives to do that (Qian & Roland, 1998;Horowitz & Marsh, 2002). Empirical studies have found that provincial fiscal expenditure has been positively and strongly related to provincial fiscal revenue since the economic Regional Decentralisation and FDI in China 37 reform (Knight & Li, 1999;Li, 2001).…”

“…The fiscal and financial reforms have hardened budget constraints, forcing local governments to create a friendly environment to attract new businesses. However, local governments may have little incentive to care about their economies if they can obtain a significant proportion of expenditure from the central government (Horowitz & Marsh, 2002). Furthermore, provinces with very limited revenue resources have strong incentives to impose many types of fees and levies on businesses and individuals to increase their local revenues, therefore worsening their local investment environment (Wedeman, 2000).…”

The Resource Curse Reversed? Remittances and Corruption in Mexico1

“…Migrants and their beneficiaries represent an increasingly significant dispersed interest group. Though they do not share proximate locations and other organizational advantages, dispersed interests exist in larger numbers and can also influence policy (Horowitz and Marsh 2002; Horowitz 2004). According to Hirschmann’s (1970) theory of loyalty, remittance recipients and senders can pursue corruption reform from their elected officials by making demands (voice), shifting their loyalty to competing officials (exit), or in the extreme, avoiding government by providing their own public goods and services (exit).…”

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“…Across China, subnational development is driven by a diverse and often overlapping array of interest groups (cf. Horowitz and Marsh, 2002;Breslin, 2007;Sheng, 2007). They range from local governments (e.g.…”