Political hierarchy and regional economic development: Evidence from a spatial discontinuity in China

Abstract

This study investigates the effect of political hierarchy on regional economic development using evidence from Chongqing’s promotion to the level of a province in China. In 1997, the prefecture-level Chongqing city was elevated to a province-level municipality, splitting off from Sichuan province, and it consequently gained a substantial increase in decision-making power for administrative, personnel, and fiscal affairs. The border areas between Chongqing and Sichuan had similar characteristics prior to treatment, allowing us to adopt a spatial regression discontinuity approach. Examining growth in town-level light intensity from 1992–2013, we find that economic activities of Chongqing towns are parallel with Sichuan towns before treatment, but activities increase sharply immediately following Chongqing’s promotion, implying an increase of 1.8 percentage-points in the annual GDP growth rate. Furthermore, we find that government officials of Chongqing have higher accountability and enact more pro-growth policies than officials of Sichuan. The results provide new evidence that empowering local governments through increased political hierarchy promotes regional development.