Term limits and rotation of Chinese governors: do they matter to economic growth?

Abstract

Since the 1980s, the economic system in China has evolved into one that combines fiscal decentralization with political centralization. Local officials are successfully motivated to foster economic growth. One of the motivation and control mechanisms established in China's political and bureaucratic hierarchy is an introduction of term limits and a rotation system for higher level government officials. Using a panel data covering detailed information for all the provincial governors between 1978 and 2004, this paper finds a positive impact of both term limits and rotation of governors across provinces on local economic growth. It also finds that term limits and economic growth exhibit a weakly inverted U relationship. Although the rotation of governors matters to local economic growth, regional variation is observed, and the positive impact of rotated governors on local growth turned out to be more obvious in the eastern provinces than in the other provinces.