The Political Root of Business Network Change

Nan Jia (University of Southern California)
TJ Wong (University of Southern California)
Tianyu Zhang (Chinese University of Hong Kong)

Abstract : Business elites are connected by interpersonal ties to form a network, and more-central positions in a network are commonly considered to be more desirable. But what determines the centrality of business elites among their peers? We argue that in China, because politics critically shape business, a businessperson's centrality in the network of business elites (i.e., business network) is to a significant extent determined by his/her centrality in the network of politicians (i.e., political network). Using data on all top managers and board of directors of publicly listed firms and all politicians at the prefecture level and above in China in the period of 2000-2017, we examine how political conditions shape the position occupied by each business elite in the business network.

Erosion of State Power, Corruption Control, and Political Stability

Weijia Li (Monash University)
Gerard Roland (University of California, Berkeley)
Yang Xie (University of California, Riverside)

Abstract : How do corruption and the state apparatus interact, and how are they connected to the political and economic dimensions of state capacity? Motivated by historians' analysis of powerful empires, we build a model that emphasizes the corrosive effect of corruption on state power. Under general assumptions about fat-tailed risk, we show that the optimal response for the head of the state apparatus is an endogenous lexicographic rule whereby local corruption is maintained at such a level that no erosion of state power is tolerated. We further investigate the conditions under which deviation from the lexicographic rule, over-tolerance of corruption, and erosion of state power become possible, showing a non-monotonic relationship in the correlation between state power and corruption across different levels of fiscal capacity. Our results are consistent with empirical patterns in recent cross-country panel-data.

Urban Bias in Capital Allocation: Empirical Evidence from China

Piyusha Mutreja (James Madison University)
Abdulaziz B. Shifa (Syracuse University)
Wei Xiao (Southwestern University of Finance and Economics)

Abstract : Whether capital is efficiently allocated between urban and rural China can have a profound implication for both production efficiency and distributive equity. However, there is little empirical evidence and analysis of rural-urban capital misallocation in China. This paper attempts to fill this gap. We find that on average, marginal product of capital tends to be lower in urban areas, indicating that rural areas face a shortage of capital. Further, we find that rural-urban MPK differences are largely due to MPK differentials across state-owned enterprises in rural and urban areas. This suggests that state policies, as opposed borrowing constraint by private enterprises, are the likely factors for under-investment of capital in rural areas. We also find that development of local financial markets narrows the urban-rural gap while direct control of the local economy expands it. Moreover, the urban-rural gap is widely existed across prefectures with different status. Finally, the urban-rural gap in capital access explains a large fraction of the observed urban-rural gap in output per worker. We believe that the reported urban-rural gap in capital access provides a case evidence of various urban bias in the country.