Promotion Incentives, GDP Manipulation and Economic Growth in China: How Does Sub-National Officials Behave When They Have Performance Pressure?

Abstract

In this paper, we attempt to answer two questions. What role does a mayor’s promotion incentive play in China’s regional economic growth? How do mayors behave when faced with promotion pressure? In doing so, we argue that significant GDP manipulation could partially reduce the explanatory power of promotion tournament theory in explaining China’s economic growth although through this tournament mechanism, the upper level government could still select high ability officials. To support our argument, we employ a regression discontinuity design that accounts for the age restriction imposed by the Communist Party of China (CPC) on the promotion of China’s prefecture-level city mayors. The empirical results show that mayors’ promotion incentives significantly increase the growth rate of statistical GDP by around 2% to 3%, while their effect on night-time light growth (an indicator of real economic growth) is merely 0.5%. This significant gap can be attributed to the artificial manipulation of GDP statistics, which is about 2.5%. The analysis points to the limits of performance-based promotion scheme in China and calls for caution when studying the complexity of sub-national officials’ behaviors when they have performance pressure.