Elite Capture in the Absence of Democracy : Evidence from Backgrounds of Chinese Provincial Leaders

Abstract

Using panel data on Chinese provinces over 27 years, we show that local public policy to a large extent is determined by the background of provincial leader, i.e., provincial party secretary. Provinces under the leadership of party secretaries who built their careers within the province have higher public goods provision and are less predatory towards business. The magnitude of these differences is large even after controlling for fiscal incentives and career concerns of rovincial leaders, province and time fixed effects; as well as after taking in to account the possibility of endogeneity of appointments using instrumental variables. We show that the results are not driven by the differences in local knowledge or innate preferences of provincial leaders. We interpret our findings as the effect of ``elite capture'' in the absence of local democracy. Party secretaries who made their careers within the province, in contrast to the ``outsiders,'' have implicit contracts with local elites, who helped them to power, to deliver benefits to them, some of which come in the form of public goods. Formally provincial leaders in China are accountable only to the center and are given strong incentives to deliver economic growth, possibly, at the expense of local public goods provision. ``Elite capture,'' i.e., the implicit contracts of provincial leader and local elite, serve as an imperfect substitute to otherwise absent local accountability mechanism.