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Pro-growth inefficiency: Rents and moral hazard in infrastructure contests in China

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  • Liu, Qijun
  • Huang, Xin

Abstract

We study contests for promotion of local government leaders orchestrated by the central government in China. The contests rewarded regional economic success. The probability of promotion increased with regional infrastructure investment but we find negative returns from infrastructure. We find feedback between corruption and investment in infrastructure. There was moral hazard – successful local government leaders who were promoted to higher level positions in the government and Party hierarchical structure left behind regional local governments mired in debt or bankruptcy because of debt financing of infrastructure investment that was used to win the center-orchestrated contests. Our study makes a contribution to contest theory by providing an empirical study for rent-seeking contests.

Suggested Citation

  • Liu, Qijun & Huang, Xin, 2024. "Pro-growth inefficiency: Rents and moral hazard in infrastructure contests in China," European Journal of Political Economy, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:poleco:v:84:y:2024:i:c:s0176268023000411
    DOI: 10.1016/j.ejpoleco.2023.102397
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    More about this item

    Keywords

    Infrastructure investment; Rent seeking; Moral hazard; Bureaucratic politicized promotion; Corruption; China;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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