Does Province-Managing-County Reform Promote the Inclusive Growth in Chinese Counties?

Wei Dongming; Gu Naihua; Han Yonghui

doi:doi:10.16538/j.cnki.jfe.20210816.401

Summary

The Province-Managing-County reform (PMC) is an active attempt by China to promote government-level reforms and decentralize economic management. It is an important measure for the reform of grassroots government power expansion. The starting point of PMC reform is to optimize government management to promote economic development, but whether it can promote the inclusive growth in counties is also an important criterion for measuring its effectiveness. Therefore, the impact of PMC reform on the inclusive growth in counties has also become the focus of attention from all walks of life. This paper intends to answer the following questions: What is the impact of PMC reform on the inclusive growth in Chinese counties? What is the impact mechanism? How should China further deepen the PMC reform to promote the inclusive growth in counties? This paper uses China’s county-level data from 2005 to 2018 to investigate the impact of PMC reform on the inclusive growth of county economy. It comes to the following conclusions: First, the PMC reform has a significant role in promoting the inclusive growth of county economy. Second, the heterogeneity test finds that the promotion of PMC reform is mainly concentrated in the eastern and central regions, counties under the jurisdiction of weak cities, counties under the jurisdiction of non-provincial capital cities and strong counties, and compared with the economical PMC reform, the fiscal PMC reform is a major factor in promoting inclusive growth. Third, after considering the spatial effect, the promotion of PMC reform has a spatial spillover effect, which is mainly reflected in the neighboring prefecture-level cities and counties within them. Fourth, the promotion effect of PMC reform is affected by fiscal expenditure responsibilities and incentive policies. The clarification of fiscal expenditure responsibility and the setting of incentive reward and punishment policies in the reform system help to strengthen the promotion effect of PMC reform. Fifth, the mechanism test finds that the PMC reform promotes the inclusive growth of county economy through channels such as strengthening grassroots fiscal security, raising the level of public bias, and promoting the upgrading of industrial structure. In short, this paper mainly expands the existing research from the following four aspects: First, under the new normal of China’s economy, inclusive development and high-quality development have become an important trend in China’s economic development. In this context, this paper examines the internal connection between the PMC reform and inclusive development, which is an enrichment and expansion of previous literature. Second, this paper uses the DID model to examine the causal effect of PMC reform on inclusive growth, and alleviate the endogenous problems that have prevailed in the previous literature. It also examines the spatial effect of PMC reform on inclusive growth, and analyzes the content design impact of PMC reform in terms of substantive authority decentralization, clear fiscal expenditure responsibilities, and incentive policy setting. It further examines the mechanism from the aspects of grassroots fiscal security, public expenditure bias and industrial structure upgrading, which is a sublimation of the scientific nature of previous research. Third, this paper also contributes to an accurate understanding of the driving factors of inclusive growth. It thoroughly examines the determinants of inclusive growth from the perspective of local government structure, and provides theoretical and empirical explanations for inclusive growth.