Regional Favoritism,Transfer Payment And Economic Growth

Since the reform and opening,China has experienced rapid economic growth and it has established a socialist market economy.However,one of the problem was the imbalance in regional economic development.The ministers of our country have had a large number of economic resources and political resources.When they chose policies that mainly benefitted their birth regions,they might promote their economic development and aggravate the imbalance in regional economic development.The ministers have always had many financial resources and projects'approval powers,especially the allocation of transfer payments.So local governments were bound to establish political ties with the ministers in order to obtain more funds to develop the local economy.That the ministerial favoritism in their birth area and the unreasonable allocation of transfer payment funds in different regions might cause imbalance in regional economic development.In this paper we analyzed the influence of regional favoritism,transfer payments and their interactive effect to local economic growth.First,We analyzed the motivation and forms of government officials' influence on the local economy at the theoretical level.We found that government officials chose policies that mainly benefitted their birth regions.One of the forms was to allocate more transfer payment funds.Second,a theoretical model was constructed to analyze the impact of different types of transfer payments on the local economy.The results showed that both general transfer payments and special transfer payments promoted the local economic growth.But the effect of special transfer payments was better than that of general transfer payments.Third,We analyzed whether the ministers of our country promoted the local economic growth by giving more transfer payments to their birthplaces based on previous analysis.Fourth,We analyzed the influence of regional favoritism,transfer payments and their interactive effect to local economic growth by using prefecture level data,adjusted DMSP/OLS data,double fixed-effect model.The study showed that:(1)Ministerial favoritism in their birth area significantly promoted local economic growth.And there was a significant positive correlation between transfer payments and economic growth.After adding their interaction,we discovered that the minister promoted local economic growth by giving more transfer payments to their birthplace.After adding CVs,the conclusion remained unchanged.(2)Special transfer payments had a significant positive impact on local economic growth.However,the impact of general transfer payments was relatively small.In addition,the ministers promoted local economic growth by giving more special transfer payments to their birthplace.But the distribution of general transfer payments had little political relevance with the ministers.(3)In the robust test,Separately regression with excluding the samples of capital cities,excluding the samples of Non-favorite provinces,excluding the samples of policy provinces,the conclusion remained same.However,we also found that the result of regressions with using samples from general prefecture-level cities showed that ministerial favoritism in their birth and special transfer payments made a more positive contribution to local economic growth.(4)Compared with the samples in the eastern and central regions,the results of the regression with using the western region samples showed that the ministerial favoritism in their birth was more conducive to local economic growth.(5)Separately regression with using GDP index,the conclusion remained same.But we found that there were some measurement errors in the use of GDP index.(6)The results of the regression with using lag explanatory variables showed that the influence of ministerial favoritism in their birth lasted one to two years.And the impact of transfer payments on local economic growth lasted three years at least.The impact of transfer payments given by the ministers on local economic growth lasted two years.Ministerial favoritism in their birthplaces,especially by giving more transfer payment funds,led to unfair allocation of resources and unbalanced regional economic development.therefore,we put forward some suggestions:(1)Establish a restraint mechanism for central government officials' behavior.Increase the degree of decentralization and expand the scope of decentralization.While considering both market allocation and government regulation.(2)Establish a stable growth mechanism for general transfer payments.Clean up,integrate,and standardize special transfer payments.(3)However,we shouldn't reduce the scale of special transfer payments too much.We should reform the special transfer payment system from project establishment,budget planning,fund allocation,performance evaluation,supervision and inspection.Also,Reduce the political connection between the allocation of special transfer payments and the ministers.Increase the efficiency of the use of special transfer payments.