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

Source

China Economic Review

Type

Journal article

Book Title

Entity type

Access Statement

Open Access

License Rights

DOI

10.1016/j.chieco.2016.06.005

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