Innovation in China: a Political Economy Perspective

Abstract : Can China’s authoritarian government “command” its way to an innovation-driven economy—that is, by mobilizing the entire bureaucracy and society to embrace innovation? We examine this question by focusing on the issuance of patents, a common indicator of innovation, in China from 1990-2015. Since 2006, when Beijing launched a national campaign to promote domestic innovation, the production of patents has exploded. But we find a significant regional variation that is not simply explained by levels of economic wealth—the political incentives of local leaders also influence patents production. Specifically, we find that cities, where local leaders face strong peer pressure to compete on the growth of GDP and fiscal revenue, produce the largest amount of patents, yet this does not affect the quality of patents in their portfolio. In other words, we identify two clear limits to Beijing’s ability to command its way to innovation through political campaigns and targets. First, the national drive for domestic innovation spurs larger quantities of patents, but not necessarily of higher-quality, as local leaders are assessed by numerical targets that measure quantity rather than quality. Second, even when the national leadership strongly prioritizes innovation, the production of patents is still conditional both upon local political incentives and local economic resources.

---

Godfather Politicians and Organized Violence: the Good, the Bad, and the Bloody

Abstract : Social order is compromised when mafias fight violently to resolve disputes. Ironically, a corrupt local politician – instead of an honest one – may serve as an impartial arbitrator (“Godfather”) to safeguard local peace. This paper builds a model of politician-mafia interaction to show, both theoretically and empirically, that a rent-seeking local politician, with the power of the state, may provide credible commitment to enforce peaceful mafia negotiations. However, when such godfather politicians are eradicated, the local power vacuum leads to surges of local violence. The anti-corruption campaign in China since 2012 – an institutional shock to eradicate corrupt politicians – provides a unique natural experiment to corroborate our theory. A difference-in-differences test suggests that violence surged by 30% in regions with local officials eradicated due to collusion with mafias, compared to the regions without. We also conduct a series of robustness checks and placebo tests to confirm the link between the violence surge and the removal of corrupt local officials.

---

Controlling the Media’s Narrative: the Coordination and Disciplining Role of the People’s Daily in China

Abstract : In this paper, we examine whether politicians in China use the Community Party of China’s flagship newspaper, the People’s Daily, to coordinate the reporting of corporate news in China. We posit, and find, that the People’s Daily is more likely to publish an article about a firm when there is a material degree of disagreement in the sentiment of recent domestic news articles about that company, ceteris paribus. This effect is more pronounced if the articles are published in commercially-oriented newspapers, during periods of heightened political sensitivity (years of a National Congress), and following President Xi’s highly visible state media visit in 2017. More importantly, we find that this disagreement dissipates / is attenuated following the publication of a positive PD’s article, consistent with subsequent news reporting implicitly anchoring their articles upon the PD’s message.

---