Province-county And Prefecture-county: The Growth Engine Of County-level Cities And A Discussion About County-managing Systems

The aim of this paper is to evaluate the impacts of different fiscal systems on economic growth in county-level, province-county and prefecture-county so to speak. I established a dataset of more than 100 counties in the Yangtze River delta region from 2003 to 2009, to do an empirical study. I find that the province-county system has a higher rate of fiscal decentralization and the results of the empirical study show that the economic growth relates positively to the rate of fiscal decentralization, the coefficient is large and significant. The county-under-province dummy also relates positively to the economic growth, indicating that the province-county system is more than fiscal decentralization and influence the economic growth in many ways.In China, the administrative level of a city also stands for its economic level. At the bottom of the administrative hierarchy are counties and county-level cities which are at disadvantage in terms of resource allocation. The province-county system helps to lower the "funnel effects" otherwise in the circumstance of prefecture-county system and to correct the resource allocation process. The statistic result shows a higher fixed investment vs. GDP ratio in province-county sample than in prefecture-county sample to prove the author's assumption. The province-county system is also a kind of fiscal decentralization and gives county governments more incentives than prefecture-county system. In the circumstance of an imperfect market economics and in the background where county governments have many means to impose impacts on markets, fiscal decentralization also allows more room for local experiment and institution innovation. The non-public sector of the economy could benefit from the government policies.