The Reform of Administrative Approval System，Industrial Structure and the Share of Labor Income

Abstract

Under the Chinese government governance model, local governments have an important impact on regional economic development. One of the important manifestations is that local governments prefer to give priority to capital-intensive industries which can bring rapid economic growth through various interventions including administrative approvals. While this change in the regional industrial structure brings “structural dividends”, it may deviate from the regional factor endowment. The resulting industrial structure imbalance may make it difficult to achieve other social and economic development goals such as employment, income distribution and inclusive growth. As a breakthrough point for streamlining administration and decentralization and the transformation of government functions, the reform of administrative approval system makes the means and behaviors of local government intervention in the economy face necessary institutional constraints by canceling administrative examination and approval items and reducing the approval power of local governments. The local governments’ industrial development preferences are subject to certain restrictions, and the regional industrial structure will change to labor-intensive industry.With reference to the related research, this paper takes the administrative service centers established in various regions as the proxy variable for the reform of administrative approval system, and uses the Chinese industrial enterprise database to calculate the ratio of the market share of regional capital-intensive industries to the market share of labor-intensive industries in the region which is used as the explained variable. The empirical research in this paper shows that the establishment of administrative service centers can significantly reduce the proportion of capital-intensive industries in the region. The functional mechanism of the reform of administrative approval system on the industrial structure is to change the institutional transaction costs of enterprises belonging to different types of industries. The effect of reducing the transaction costs of enterprises established by administrative service centers is mainly reflected in labor-intensive industries with less impact on capital intensive industries. This paper further examines the changes in regional employment and labor income shares caused by changes in industrial structure, and finds that the reform of administrative approval system makes changes in industrial structure more in line with regional comparative advantages and promotes the increase in regional employment and labor income shares.In addition to being an important supplement to the existing research, this paper also has important practical significance. The analysis shows that the reform of administrative approval system helps to reduce the structural distortion of economic development that deviates from the comparative advantage of regional factor endowments by reducing the administrative examination and approval intervention of the local government. Furthermore, the reform helps to increase employment and the share of labor income, so that the growth benefits will benefit the working class more and achieve inclusive growth.