2011 Panel at ISNIE Conference

June 17, 2011
Stanford University, Stanford, California, USA

Four workshop alumni - Ben Zou, Yunzhi Hu, Meina Cai, and Mi Luo - presented papers on modern China at the 2011 conference of the International Society for New Institutional Economics. Mary Shirley organized and chaired the panel, and Nobel laureates Kenneth Arrow and Douglass North served as the discussants. Over 200 scholars attended the conference, held on the campus of Stanford University.

"Flying Land": Intergovernmental Cooperation in Local Economic Development in China
Meina CAI
University of Wisconsin-Madison

The mainstream literature explaining economic growth in China emphasizes competition across local governments. Departing from this literature, this paper examines a widespread but largely overlooked phenomenon of cooperation in land quota transfers across jurisdictions, referred to as "flying land." I argue that cooperation in land quota transfers is an institutional innovation arising from the conflicting goals for local governments of promoting local economic growth and fulfilling land quota requirements imposed by the central government. Land quota transfers across jurisdictions help local governments with land scarcity overcome the bottleneck in gaining the construction land necessary to promote further economic growth as well as help local governments with land abundance gain revenue and investments. The paper concludes that intergovernmental competition occurs between jurisdictions with similar economic profiles. When an important endowment, land, is factored in, cooperation emerges between jurisdictions with different economic profiles.

To Become Homo Economicus:
The Communist Party's Embrace of China's Monopolistic Sectors
Yunzhi HU and Yang Yao
Peking University

How has the Chinese Communist Party (CCP) maintained its economic influence during China's transition from a planned economy to a market economy? Using individual-level data from urban China, we argue that one way the CCP has managed to maintain its economic power is by co-opting employees in monopolistic sectors during the transitional period. We base this on three findings: (1) CCP members who have joined the Party before they start their career are more likely to obtain a job in monopolistic sectors. Also, compared to employees in competitive sectors, employees already in monopolistic sectors are more likely to join the CCP. (2) CCP members in monopolistic sectors enjoy premiums in earnings and greater opportunities for promotion compared to their counterparts in competitive sectors and to non-CCP members in monopolistic sectors. As a result CCP members in competitive sectors have incentives to switch to monopolistic sectors and non-CCP members already there want to join the CCP. (3) Further investigation suggests a bilateral selection during the Party's recruiting process: People working in monopolistic sectors are more eager to submit applications to the CCP organization, and those working in monopolistic sectors find it easier to get accepted. The results are robust to various specifications including OLS, fixed-effects and endogenous switching model. This implies that the CCP organization has adapted its recruiting criteria to favor those who control economic rents.

Do Village Elections in China Select Better Qualified Leaders? -
Meritocratic Selection in China's Grassroots Democracy
Peking University

Do village elections in rural China with open nominations select better qualified leaders as compared to the previous appointment system? Using a unique sample of elections between 1982 and 2006 in 246 villages from 29 provinces, this paper analyzes the effect of elections on the years of schooling and pre-election managerial background of elected leaders, under both two-way fixed effects and ordered probit specifications. Using elections with open nominations has a significantly positive effect on both measures of leaders' qualifications. Compared to appointed leaders, elected leaders have about one year more of education and a doubled probability of having previous management experience. Endogeneity issues are addressed with a quasi-natural experiment of an election law enacted in 1998. Future research will examine the correlation between leaders' qualifications and subsequent village performance in this context.

Village Elections, Communist Party Oversight, and Public Spending
in Rural China

University of Maryland

What impact does the introduction of voting for village committee in China have on the allocation of local public funds? Does that effect vary with local Communist Party's role in elections? I examine these questions for a sample of 241 villages from 1987 – 2002. Employing a differences-in-differences approach with village fixed effects, I find that introduction of elections increased the probability of yearly village-funded public goods investments by 36%, increased village-to-household transfers by 16%. However, when a Party branch member won the election as village committee chair the probability of public goods investment increased only 28% and village-to-household transfers were essentially no different from those in villages without elections. While the consent of the Party branch is necessary for the village committee to make these allocations, controls by the Party are greater when its local branch member is elected as village chair. Committee chairs who were also Party branch members were more likely to be re-elected subsequently than others. The results suggest that Party oversight reduces the effect of holding village elections.