Abstract
AbstractIn a performance‐based promotion mechanism that rewards economic growth, we demonstrate how local governments' chiefs are incentivized to make policy decisions favored by upper‐level offices. Using annual data from prefectures in China, we find evidence that in response to a higher level of competition in the geographic cluster, local chiefs implement several growth‐enhancing policies. These include prioritizing investment in public infrastructure over redistributive spending and allocating additional resources in the core regions, relative to the cross‐jurisdictional borders. We also find that these policies lead to further regional growth. The results remain consistent even when we instrument the endogenous political replacements with the sudden death of chiefs, and when we use various measures for the effectiveness of chiefs. This evidence suggests that relative performance evaluation plays an essential role in the political system of China.
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