The Competition Among Local Governments And Coordinated Development Of Regional Economy

Based on literature review, this paper examines the limitation of previous studies that attribute the emergence of local governments' competition to the maximization of local interest, and proposes a new local government's behavior objective model as fits to the status quo of China's transitional economy. That is, local government's objective is not just to maximise the interest of local bureaucracies(Agency)(personaIly and collectively) and local resident, apart from these, it also include the interest of national government,its the collective interest of local bureacracies(personally and collectively), local resident (Clientl) and national government(Client2). This new objective model will enrich the connotation of local government behavior objective model, and importantly, make the analysis on the mechanism of territory competition closer to the reality.The territory competition of local governments for the maximization of collective interest poses a positive effect on coordinated development of regional economy by strengthening the local development capabilities in such areas as infrastructure, inter-/intra-industry linkage and institution environment. This is because local infrastructure plays a fundamental and leading role in the local development environmen, while the flourishing of local inter-/intra- industry reduces the transaction cost and improves the efficiency. Therefore, local government should work on these two factors to improve the "hardware" of territory competition capablities. By assessing the characteristics of local government's institution competition and institutional transformation, this paper puts forward a model based on game theory to test whether local government's institution competition will accelerate the institutional transformation process. Analysis based on this model shows, under the condition of an open environment, local government's institution competition does accelerate the institutuional transformation process. This also explains why the interaction of the reform and opening-up of a place is conducive to the local development.The territory competition for the maximization of the exclusive local interest inevitablly leads to some negative effect. The game theory model also testifies whether territory competition and local economic development objective would come at cross, if local government only aims tomaximise the exclusive local interest while the economic externalities exist. The local government's basic function is to provide general public goods including institution, and the investment on local public goods of one place is likely to influence the fiscal revenue of another place. According to different externalities of public investment, this paper categorized the local government's investment into progressive investment and protective investment. The progressive investment could generate yields for the homeplace as well as other territories, whereas the protective investment is beneficial to the local place at the cost of other place's interest. Analysis based on the game-theory model shows, when the local government seeks to maximize the exclusive local interest rather than the collective interest, it will result in an undersupply of progressive investment and an oversupply of protective investment, thus leading to a less-than-coordinated development. Of regional economy. Therefore, given the existence of economic externalities, territory competition of local governments is, to certain extent, incongruous with regional economic development. Those conflicts are well demonstrated in the repeated local infrastructure construction, bidding wars for inward investment and local protectionism, which this paper evaluates in detail with game theory analysis.Furthermore, based on several case studies and the case of Changjiang River Delta regional development, this paper investigates in depth the rationale behind local government's territory competition in such areas as reconstruction, market access barrier and pollution externalities, as a supplement and assessment for the aforementioned theoretical analysis. The study of local government competitive behaivor in the Changjiang River Delta regional integration process could well be regarded as a miniature of the interaction between local government's competition and coordinated development Of regional economy.