Strict Party Governance and economic development: Evidence from China

Abstract

China's economy has shifted from a period of high-speed growth to a new era of high-quality development and urges for further deepening the reform of government, market and the self-revolution of the Communist Party of China (CPC), among which Strict Party Governance (SPG) is an essential way. Based on the reports, communiqués, resolutions, editorials of the CPC, we use text-analysis techniques to construct a SPG Index and study the relationship between SPG and China's economic development (i.e., economic growth, pollution, innovation and income gap). Empirical results show that SPG has significantly improved China's economic development, and the effect is more pronounced in regions with higher proportion of the state-owned economy and higher level of fiscal decentralization. In terms of channel analysis, we find that the government efficiency, the degree of integrity of officials, and the marketization level are important channels for SPG in affecting economic development. Further analysis shows that SPG plays a more significant role during the period of anti-corruption and areas with weaker legal protection. Results reveal that SPG is a key factor in China's economic transition and development.