The Economic Consequences of Political Hierarchy: Evidence from Regime Changes in China, AD1000-2000

Abstract

Administrative centers, connecting subnational units with the central government, play an important part in a country’s political hierarchy. While the literature has discussed the roles of administrative centers, several important questions remain unanswered: What would happen if the status of administrative centers changed? Do administrative centers gain success primarily due to an increase in public employment? We argue that China, with its long history, a centralized political system, and multiple regime changes, provides us an opportunity to investigate these issues. Using prefecture-level panel data and exploiting regime changes during AD1000-2000, we find that changes in provincial capital status led to the rise and decline of different prefectures, measured by population density and urbanization. Two other novel findings stand out: (1) the economic advantages of the provincial capitals did not persist if they lost their political status, (2) political hierarchy shaped economic development not only via public employment but also via important market channels like transportation networks, which implies an aggregate cost for provincial market access.