Government Institutions and the Dynamics of Urban Growth in China

Economic growth in China in recent decades has largely rested on the dynamism of its cities. High economic growth has coincided with measures aimed at improving the efficiency of local governments and with a mounting political drive to curb corruption. Yet the connection between government institutions and urban growth in China is still poorly understood. This paper covers the gap by assessing the extent to which government institutions matter for urban growth and what their role is relative to more traditional factors behind growth in Chinese cities. Using panel data for 283 cities over the period between 2003 and 2014, the results show that urban growth in China is a consequence of a combination of favourable human capital, innovation, density, local conditions, foreign direct investment (FDI), and urban government institutions. Both government quality and the fight against corruption at the city level have a direct effect on urban growth. Measures to tackle corruption at the provincial level matter in a more indirect way, by raising or lowering the returns of other growth-inducing factors.