Political hierarchy and urban primacy: Evidence from China

Abstract

This paper studies the distributional effects of a centralisation reform of China’s political hierarchy on regional urbanisation. Initiated in 1983, the reform, implemented over a 20-year period, transferred the decision-making powers of county-level governments to prefecture-level governments. We use a difference-in-differences approach to evaluate the heterogeneous urbanisation of counties in response to this centralisation reform. The distributional effects include greater urban primacy and a more marked core–periphery structure at the prefecture level. Further analyses reveal that the results are driven by the reallocation of fiscal resources and industrial production based on both productivity advantages and political favouritism.