Research On The Influence Of Administrative Hierarchy On Regional Economy

China has achieved a remarkable economic growth miracle since its reform and opening up.The relatively early historical formation of a centralized administrative hierarchy(i.e.,the Junxian system,which later evolved into the provincialprefecture(zhou)-county system in the Ming and Qing dynasties,and the provincialprefecture-county system in contemporary times)is considered to be significantly associated with this economic miracle.Since the Qin Dynasty,China has been ruled by a nested multi-level structure under an administrative hierarchy,with the distinctive feature that local governments govern and develop their localities according to their hierarchical functions or division of labor.Higher-level governments have greater decision-making power than lower-level governments.The higher the administrative level,the better the economic performance of the area under its jurisdiction.This system has been followed until contemporary China because of its efficiency in decision-making and implementation in managing the economy,finance,administration,and military.In recent years,China has achieved rapid economic development under this system,but it has also brought about a series of resource allocation distortions.For example,under the government-led regional economic development model,some provinces have used relevant policy tools to favor economic resources and policy facilities to cities at high administrative levels.However,at the same time,the spatial layout of Chinese cities has become irrational,and the phenomena of "one-city dominance" and "big city disease" have become more and more obvious.The administrative hierarchy not only has a long-term effect on the development of China’s regional economy but also influences the allocation of regional resources to some extent.In the context of the current national strategy to promote regional coordinated development and the coordinated development of large,medium and small cities and towns,it is of great theoretical and practical significance to comprehensively and objectively evaluate the role of administrative hierarchy in China’s economic development and make policy recommendations,to promote the formation of a regional economic layout with complementary advantages and high-quality development in China.The administrative hierarchy remains the main state governance system in China today and is considered an important institutional pillar for the achievement of the Chinese miracle(Zhou,2017).Throughout the successive feudal dynasties,China’s regional economies exhibited a phenomenon in which areas close to centers of power tended to have better economic development.For instance,provincial capitals were generally more economically developed than the surrounding ordinary cities,a phenomenon that has persisted until contemporary times.Max Weber,therefore,called cities formed by administrative hierarchies "oriental cities".However,there is limited direct evidence in literature regarding the long-term effects of administrative hierarchy on economic development in centralized China.Thus,it is important to investigate the long-term effects of administrative hierarchy to better understand contemporary regional economic development.Nowadays,while cities are the source of modern economic growth and depend on the agglomeration of resources for their productivity advantages,we can also see that cities with high administrative level have significantly better economic development than ordinary cities.Currently,China has a "centralized political and decentralized economic" governance structure,in which the government is a player in the market and has implemented several economic reforms that allocate necessary resources or factors of production from the central to the local level,in descending order of administrative rank.Since high-level cities have higher decision-making power,local governments have obvious differences in seeking relevant policy resources,and the policy favoritism channel becomes an important macro perspective for us to further understand the impact of the administrative hierarchy system on regional economies.Meanwhile,the current economic model of regional development in China is mainly government-led.Local governments compete with each other to promote economic growth in their jurisdictions,driven by the motive of maximizing their interests.Local governments have a strong willingness to directly influence firm behavior by providing special subsidies,tax incentives,etc.So,what is the impact of high administrative level cities on firm development with access to more economic resources? Enterprise development becomes an important micro channel to further understand the impact of administrative hierarchy on the regional economy.Therefore,this paper aims to examines the long-term effects of administrative hierarchy,explores the macro effects of administrative hierarchy on the regional economy from the policy favoritism channel,and dissects the micro channels of administrative hierarchy on the regional economy from the enterprise development level.First,this paper studies the long-term effects of administrative hierarchy on regional economic.This paper first analyzes the history of administrative hierarchy construction and examines the effects of administrative hierarchy on regional economic development today through path dependence of early investment and historical persistence,and the higher the administrative hierarchy,the better the regional economic development.This paper examines this through a historical natural experiment of differences in the construction of administrative hierarchies inside and outside the Great Wall during the Ming and Qing dynasties.During the Ming and Qing dynasties,the Ming dynasty lost its rule over the area north of the Great Wall due to an exogenous event,the Tumu Crisis,and the Ming dynasty then constructed an administrative hierarchy in the borderlands south of the Great Wall,setting up Junzhen,Weisuo,and other military settlements at different administrative levels,which evolved into the present cities,prefectures,counties,and townships by taking advantage of their location.The study further finds that the economic development of the areas south of the Great Wall is now significantly better than that of the areas north of the Great Wall,and the higher the administrative hierarchy,the better the economic development of the areas.The mechanism analysis suggests that the power to allocate resources by administrative hierarchy constituted an advantage in building military settlements and cities in the Ming and Qing dynasties south of the Great Wall,and the persistence of this advantage is an important reason why administrative hierarchy had a sustained effect and shaped economic geography.Next,this paper looks for the reasons why administrative hierarchy promotes regional economic growth from the macro perspective of policy favoritism.Since important resources or factors of production in China are distributed from the central to the local level,from higher to lower level cities,do cities at higher administrative levels benefit more when the central government supports specific regions? This section examines a large-scale regional preferential policy,the Great Western Development program,based on panel data of prefecture-level cities in Western China from 1995 to 2007 using a difference-in-differences model.This paper finds that the average annual GDP per capita growth rate of high-level cities is about 1.26%higher than that of ordinary prefecture-level cities after the implementation of the policy.In addition,this paper finds that high-level cities have higher growth in population size,capital investment,and the number of transfer payments received due to their higher decision-making power.The geographical environment and initial economic conditions have limited impact on the regional economy after the implementation of the policy,compared to the administrative level factor which is more critical.This paper also further finds that after the implementation of the policy,high-level cities do not bring positive spillover effects to ordinary prefecture-level cities,but rather may agglomerate resources from neighboring cities,and to some extent,this is accompanied by an increase in the degree of resource misallocation.Finally,this paper further dissects the micro channels of the impact of administrative hierarchy on the regional economy from the level of enterprise development.In the context of high-level cities enjoying more economic and social resources and management authority,and local governments having strong incentives to promote economic development in their jurisdictions,high-level cities with more resources have a significant impact on the development of enterprises in their jurisdictions.This paper examines the effect of city administrative hierarchy on the total factor productivity of manufacturing firms.To mitigate the endogeneity problem,this paper uses the 200,000 population criterion in delineating the administrative level of cities during the Republic of China period as an instrumental variable as well as a further subsample of firms near the boundaries of high-level cities for estimation.The results show that the higher the administrative level of a city,the higher the total factor productivity of the firms in its jurisdiction.The mechanism test shows that high-level cities enjoy more access to financial resources,political resources,and public education resources,i.e.,they have more financial institutions,information intermediaries,government services,higher education institutions,research institutions,primary and secondary schools,etc.,which will promote firm productivity by easing firm financing constraints,improving human capital levels,and promoting firm innovation.Finally,high-level cities mainly act on private,small and young firms,but there is a certain degree of "patent bubble" in high-level cities,and high-level cities have negative spillover effects on the productivity of firms in the surrounding ordinary cities.This paper presents several research innovations.First,this study promotes the integration of history and economics in China studies by combining recent studies on Chinese history and economy to deepen the understanding of Chinese issues.This study examines the long-term effects of administrative hierarchy using a natural experiment of historical differences in the construction of institutions inside and outside the Great Wall during the Ming and Qing dynasties,giving direct evidence of the long-term effects of administrative hierarchy on economic development in China under centralized power.It also gives evidence of the economic consequences of the differences in historical modes of rule in China as a nation and reveals the historical roots of administrative hierarchy in the divergence of economic development and the pattern of economic geography in regions inside and outside the Great Wall.Second,this study integrates policy practice and economic theory to explore the economic relations and institutional mechanisms that align with the objective requirements of economic laws under specific economic conditions.By examining the potential economic consequences of unequal administrative power in cities through the lens of policy favoritism,this study sheds light on the institutional reasons behind the failure of relevant policies to effectively achieve their anticipated implementation effects.Furthermore,this research not only contributes to the literature on the relationship between primate cities and political systems but also enriches the understanding of inefficient growth in the East Asian economic model due to high investment.This suggests that future place-based policies should consider administrative hierarchy to promote coordinated regional development.Third,most of the existing literature studies the impact of administrative hierarchy at the macro level and seldom explores the micro mechanisms of its impact;this study enriches the literature on the micro enterprise channel of the impact of administrative hierarchy on regional economies.While most studies have argued that the agglomeration effect of resources in large cities can increase firm productivity,this paper explains the deep reasons for resource agglomeration from the perspective of the administrative hierarchy of cities.In addition,this paper examines the microeconomic impact of administrative hierarchy and finds that highlevel cities have an important impact on firm productivity through different mechanisms,which provides some empirical references on how to solve the challenges of firm development and enhance the efficiency of economic development.Fourth,this study also features important innovations in research methodology.The paper looks for historical natural experiments to identify the longrun impact effects of administrative hierarchy and uses geographic regression discontinuity for estimation.The paper also uses the difference-in-differences model to identify the impact of administrative hierarchy through policy favoritism channels.The paper utilizes instrumental variables for the estimation in identifying the causal relationship between administrative hierarchy and firm development.Finally,possible endogeneity issues of the above methods are addressed.