Changes in officials, total factor productivity fluctuation and government transformation: Evidence from Chinese prefecture cities

In: Pacific economic review, Volume 26, Issue 2, p. 283-299

Abstract

AbstractThis paper investigates the interrelationships between changes in officials and total factor productivity (TFP) in China. The tournament competition for promotion results in a series of predicaments, such as excessive investment, duplicate construction, split regional markets and misallocations; these negative effects further inhibit local TFP. Local government transformation from driving investment to providing services can promote TFP. We use data from 230 prefecture cities between 1999 and 2013 and find the following: (a) in recent years with the process of government transformation, changes in officials have typically had less impact on TFP fluctuation than in previous years; (b) changes in officials mainly affect technology efficiency (TE) in TFP; and (c) the mediation model reveals that changes in officials' positions influences TFP through economic spillovers and tax competition. Overall, our paper offers novel evidence for the impact of government administration on productivity and technology development, which is significant for policy decisions during government transformation.