Chasing or cheating? Theory and evidence on China's GDP manipulation

Abstract

This paper studies the effect of promotion incentive on county officials’ GDP manipulation in China, both theoretically and empirically. We employ satellite nightlight data to estimate a proxy for GDP manipulation. Our difference-in-difference estimation explores the variation in political turnovers across counties during the local party congresses between 2006 and 2007. We find that county officials who are in the early period of their tenure and thus expect a higher chance of being promoted, undertake more cheating effort to manipulate GDP than those in the later period. Furthermore, we find that the impact of promotion incentive on GDP manipulation is smaller in counties where local officials are subject to stronger accountability, either from their superiors or from the grassroots. These results are not only consistent with the model predictions, but also state that the lauded merit-based promotion system in China could lead to systematic GDP manipulation, which may induce information distortion problem.