Incentives or Background of Party Chiefs? Determinants of Variation in Provincial Policy Outcomes in China

Abstract: The variation in performance and public policy of Chinese provinces to a large extent are determined by backgrounds of CEOs of the provinces, i.e., provincial party secretaries. Provinces under the leadership of party secretaries with work experience in other provinces or the center perform worse, are less open, have higher share of SOE employment, and shift more revenues off budget compared to provinces with party secretaries who built their careers within the province. The magnitude of these effects is large even after we control for differences in fiscal incentives of provinces, career concerns of provincial leaders, cross-province variation, and macroeconomic trends. The results contradict the “local capture” hypothesis, which predicts that “homegrown” provincial leaders are more influenced by local vested interests. The results are consistent with a combination of two (not mutually-exclusive) explanations: differences in central entrenchment and differences in preferences.