Local Government Investment, Administrative Monopoly And Economic Growth

After the Reform and Opening-up policy in 1978, especially the 1990s, China has gotten its outstanding development achievements in all its economy, politics and society. During such a "China's Miracle", Chinese local governments have played an increasing important role in both its economic development as well as its political reform process. On the one hand, they significantly improve their economic growth and employment through its self-investment which favors China to have its remarkable development achievements; on the other hand, during its political reform process, Chinese local governments are more and more relatively independent with its central government in both revenue and decision-making powers after the fiscal decentralization reform in 1990s. Therefore, with the improvement of its relative economic independence, in order to provide well performance support to its officers during the "promotion championship" and avoid the sharing of its economic rents, Chinese local governments-the institutional supplier-use their administrative powers to implement different kinds of regional administrative barriers to impede competition from outside regions through which its local economic growth as well as employment will be effectively protected.However, a very interesting problem is that the local governments'administrative monopoly itself does not increase its utility, since even though the administrative monopoly ensures local governments'revenue and employment, its consistency and persistency will be seriously influenced without the support of its economic growth. Therefore, as an economic measure, local government's investment is an important instrument to stimulate its economic growth, while economic growth offers the reliable backups for local administrative monopoly-an institutional element. Therefore, in order to analyze the important role Chinese local governments as a main part of its economy have played, this paper tried to put Chinese local governments' investment, administrative monopoly and its economic growth under one unique analysis framework and find more reasonable explanations for "China's Miracle" through the empirical analysis of the relationships between transitional Chinese local governments'investment, its administrative monopoly and economic growth.With the combination of standardized analysis and empirical analysis, this paper drew its conclusions by analyzing the relationships between Chinese local governments'investment behaviors, administrative monopoly and economic growth based on Chinese provincial panel data from 1994 to 2007:Regional administrative monopoly and local economic growth have the anti-U shaped relationship and current administrative monopoly effectively improves its economic growth for most provinces. At the same time, administrative monopoly has the U-shaped relationship with Chinese local governments'investment and now they are on the slipping down side of the U-shaped relationship. Currently, both Chinese local governments' investment and its administrative monopoly significantly stimulate its economic growth and they have the substitution effect with each other, which means that in order to achieve certain ultimate economic growth goal, on the one hand, Chinese local governments can increase its regional enterprises'employment and competition ability through its self-investment in order to crowd out the competition from outside regions; on their other hand, they can also use their administrative powers to implement different kinds of barriers to inhibit the outside enterprises competition with regional ones. However, in the long term, administrative monopoly is harmful for the countrywide marketed scale effect as a whole. Political rents are in cost of economic efficiency.This paper are mainly divided into five parts:Introduction, Literature Review and Basis of the Research, Modeling and Data Explanation, Empirical Analysis and Tests and Conclusion. Introduction (Chapter One) shows the issue this paper concerned and tried to investigate as well as giving a brief explanation of the background, significance, structure, innovation and shortages of this paper. In Literature Review and Basis of the Research part (Chapter Two), I mainly reviewed the literatures of economic growth from the perspectives of fiscal division, administrative monopoly and other local governments'behaviors respectively and also gave a brief valuation of current researches related to this paper's research area. Based on the analytical framework given in Chapter One and the theoretical background in Chapter Two, Modeling and Data Explanation part (Chapter Three) explained the models and data which will be used in later empirical analysis. Empirical Analysis and Tests (Chapter Four) empirically analyzed the relationships between Chinese local governments' investment, administrative monopoly and economic growth by using different econometric instruments. Conclusion part (Chapter Five) concluded the main contents of this paper and gave relative expectation of how should we do to keep the economy's long term efficient growth as well as increasing the internal markets'scale effects as a whole.