Local Government Competition And Regional Economic Growth

China's reform-opening is a process changing from the planned economy to the market adapted, meanwhile the role of government is shifting from allocating resources to providing public services. One of the most important strategies China chooses to achieve this transformation is to decentralizing authority. China's decentralization reformation can be divided into two parts, one is that the government releases the authority of allocating economic resources to the enterprises, another is that the central government decentralizes parts of authority of allocating economic resources to the local government. The former part is called "marketization", while the later one is "administration decentralization". Although the decentralization reformation is not a full condition to fierce the competition among the interest bodies, there is no doubt that it raises the status of the grass-roots economic decision-making body, and exacerbates the competition among local governments in economic fields since the 80s of the last century, and the competition gradually enters into the stage of"compete for growth". Then how to evaluate the affection on economic growth with these competitive practices? In other words, is the local government competitive behavior a driving force or an obstacle to the regional economic growth? Or which force exerts more affection if both exist at the same time? We will carry a deep investigation and analysis on above questions in this paper.With the gradual establishment of the fiscal decentralization system in China, the independent interest of the local government is highlighted and this give rise to the situation that they compete fiercely for the economic interests, what is more, the promotion system of local officer strengthen the competition among local governments. The forms of competition among local governments can be divided into antagonistic competition, differentiation competition and cooperative competition in general. Here we'll analyze the gain and loss on economic effect of antagonistic competition and differentiation competition by enumerating the competition affection on the area of tax and public spending. Although these two competition patterns exert the result of promoting the regional economic growth, the negative effect should not be ignored because the trend of vicious competition would offset the positive effect. On the other hand, along with the intense and intense competition among local governments, they would find that they are able to obtain a long-term monopolistic advantage by institutional innovation. So the effort to setup a nice and different institutional environment for attracting the resources outside their region would sure comes to be the final selection by local governments. These competition patterns trigger a large-scale institution innovation among local governments. This promotes the Chinese economic reformation from centralized planned to market adapted, and effectively stimulates the economic growth which went on for over 30 years. However, it should to be noticed that the lack of institutional restriction to the competition behavior of the local government results in a negative effect to the regional economic transition and economic growth. If this defection was not eliminated quickly, it would seriously damage the process of China's economic reformation and would finally slow down the efficiency and speed of Chinese economy.The final conclusion of this paper is as follows: Firstly, excessive antagonistic competition pattern is not conducive to regional economic growth while the differentiation competition pattern leads to regional economic cooperation. Secondly, the local governments hope to promote institutional innovation in order to form a long-term competitive advantage. Thirdly, the competition among local governments promotes the regional economic transition which stimulates the regional economic growth. Finally, because of the defect in restraint mechanism on competition behavior, the competition among local governments produces a negative effect to regional economic growth. The contribution of this paper to the relevant theory is incarnated with two aspects: Firstly, it initially sorts out a path on how local government competition affects regional economic growth. Secondly, it reveals the reasons why the competition among local governments does harm to the regional economic transition and economic growth. In order to consummate the local government competition mechanism in China, the following four actions should be taken: Firstly, we should establish an institutional and legalized decentralization relation between the central and local governments. Secondly, we should construct the local public finance system aiming to equalize the basic public services. Thirdly, we should improve the evaluation system for government officials. Finally, we should establish an effective inter-regional coordination and management department.