The Contractual Explanation Of High Investment In China

High investment has been an important phenomenon since China's reform and opening up.With high investment,China has achieved an average annual growth rate 9.6% of GDP during the past 40 years,creating a world-renowned "Chinese miracle." However,high investment is not only an important supporting force for high economic growth,but also source of a series of major problems such as duplication of construction,overcapacity,deterioration of income distribution,debt burden,etc.In this sense,as the nexus of various forces of supporting China's economic growth,high investment is not only a useful fulcrum of summing up various theories,but also a powerful approach to characterize the essential features of China's economic growth.Because the phenomenon of high investment is happened in the process of institutional reform and economic growth,it is very easy for us not only to include the effect of institutional reform into the analysis context,but also to take into account the efficiency of production factors allocation and demand factors by analyzing high investment phenomenon and its operating mechanism,which,in turn,makes it a particularly important significance.The literature about high investment has taken a variety of perspectives.This dissertation follows this logic that all the economic phenomena is due to actions of human,and human acts respond to a specific institutional arrangements.So it is suitable to study high investment from the perspective of the contract,and it is found that high investment is the inevitable result of existing contract arrangements.The perspective of contract can be analyzed specifically to the "individual behavior choice",therefore,the macro investment of high investment has a more solid micro-foundation.The dissertation combines local officials and entrepreneurs as two different microcosmic subjects into a unified framework,providing an interesting way to understand the micro-economic mechanism of high investment from the perspective of individual behavior.This dissertation presents a unified framework of responsibility contracts,which examines the behavioral choices of the two major actors—local officials and entrepreneurs,indicating that high investment is a rational choice for local officials and entrepreneurs under the constraints of responsibility contracts.The dissertation first gives the connotation of the contract of responsibility,which shows that the responsibility contract is a structure of covering the output target,the condition of resource use and the condition of income.Then,the responsibility contract is decomposed into three sub-contracts: official incentive contract,decentralized contract and government-entrepreneur contract.In the existing literature,the three types of research,such as official incentive,fiscal decentralization and government-entrepreneur relations,have established corresponding theoretical models,and a few studies have established two models.But so far,it has not been found that the three ones are unified in a framework of the theoretical model.This dissertation attempts to establish a unified model,then use it to more comprehensive analysis of officials and entrepreneurs behaviors.The results show that the contract of responsibility has a strong explanatory power,not only can explain the high investment in the "good" investment,but also can explain the "bad" investment.One dimension of the dissertation is the incentive for officials.The dissertation's research shows that local officials play an important role in the formation of high investment.The pursuit of political targets by local officials under the framework of liability contracts is reduced to the pursuit of high investment under the constraints of minimizing transaction costs;local officials' pursuit is a direct result of rent-seeking as the core of investment activities.The empirical evidence suggests that many corruptions are often associated with investment.The dissertation also shows that local officials' incentive contracts must meet the constraints of participation and incentive,in order to maximize the enthusiasm of local officials and prevent their moral hazard.Finally,the author analyzes the formation mechanism of high investment and uses the data of the city-level to verify it.it is found,based the empirical analysis,the competition of mayor and the party secretary for the promotion has a significant positive impact on investment,this effect will be through tenure,investment channels and other variables play a role.Another dimension of the dissertation is decentralized contract.Because decentralized contracts provide institutional backgrounds,decentralized contracts have a significant impact on local officials' competitive strategies.The author finds that different degree of decentralization of local officials of the degree of incentives are different;different fiscal and taxation system arrangements led to local officials of different competitive strategies.In the framework of the responsibility contract,in order to maximize the pursuit of their own interests,the behavior of local officials under the fiscal contract system have strong efforts to protect local enterprises,especially to develop local state-owned enterprises and township enterprises,resulting in government-led extensive investment and investment overheating.Under the tax-sharing system,local officials behave as officials to support the development of private enterprises and actively attract foreign investment.These activities have induced the wave of privatization,brought the rise of the private economy,as well as the investment around the competition,and the land finance has become an important means of local government survival.On the basis of theoretical analysis of the influence of fiscal decentralization on investment,the dissertation also uses the city-level data to analyze the effect of the interaction between the official incentive contract and the fiscal decentralization contract on the investment.The government-entrepreneur relationship contract is the third dimension of the dissertation.In this dissertation,the author studies government-entrepreneur relations to make up for the current shortcomings of such literature.In examining the causes of high investment,the existing literature is too much emphasis on the behavior of local governments and officials,and pay little attention to the behavior of entrepreneurs.The lack of entrepreneurial figure greatly limits the explanatory power of the existing literature.Obviously,the role of entrepreneurs for investment is indispensable.Without investigating the relationship between government and entrepreneur,it can't explain the behavior of entrepreneurs well,and can't even explain the behavior of local officials.The existing government-entrepreneur relations become the will of local officials through various forms imposed on state-owned enterprises and private enterprises,which not only directly lead to entrepreneurial investment behavior is alienated,but also on the allocation of entrepreneurial talent had a profound impact.Under the direct of the responsibility contract,local officials not only conduct directly investment activities by their control of resources to achieve their own goals,but also induces,or even forces entrepreneurs under the power of government-entrepreneur relationship to enable to help them to achieve their goals,and entrepreneurs through government-entrepreneur relations to obtain more rent-seeking income,Which led to the entrepreneur will be more energy to the non-productive rent-seeking activities,rather than technological innovation and productive activities,the results of entrepreneurial behavior alienated,the configuration of entrepreneurial talent is distorted.In this case,the over investment of the enterprise becomes common.Finally,The author analyzes the limits of high investment under the context of responsibility contract.Generally,High investment is the result of the co-operation of the three contracts of the responsibility contract.The increase in investment depends on the marginal efficiency of the investment and the debt burden caused by the high investment.But the responsibility contract itself will change,then whether high investment can continue depends on a variety of factors.