Political institutions, entrenchments, and the sustainability of economic development – a lesson from rural finance
Date
2016
Authors
Qian, Meijun
Huang, Yasheng
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
This paper provides insights on the sustainability of economic development from a historical
and political economy perspective. We demonstrate that China's rural financial policy in the
1980s was quite liberal in employing market mechanisms, supporting entrepreneurship, and
encouraging competition. These policies were abandoned in the early 1990s and replaced by
ubiquitous government interferences that shifted resource and policy priorities to benefit political
incumbents. A large panel of survey data confirms that rural household access to finance
decreased dramatically in the 1990s and that the statistical significance of economic entrepreneurial
factors in determining credit allocation also fell. Further empirical analyses show that
market economic conditions are not sufficient to explain these changes and the evidence is
consistent with a political entrenchment motive during the political regime after the turmoil
in the year 1989. Given the connection between entrenchment and underdevelopment, our
findings raise the concern that China's political institutions' insufficient limits on the government
could be a challenge for China to sustain its economic success.
Description
Keywords
Liberalization, Political events, Entrenchment, Financing, Private sector
Citation
Collections
Source
China Economic Review
Type
Journal article
Book Title
Entity type
Access Statement
Open Access