Did Government Decentralization Cause China's Economic Miracle?

Abstract

Many scholars attribute China's market reforms and the remarkable economic performance they have fostered in part to the country's political and fiscal decentralization. Political decentralization is said to have stimulated local policy experiments and restrained predatory central interventions. Fiscal decentralization is thought to have motivated local officials to promote development and harden enterprises' budget constraints. The locally diversified structure of the prereform economy is said to have facilitated liberalization. Reexamining these arguments, the authors find that none establishes a convincing link between political or fiscal decentralization and China's successes. They suggest an alternative view of the reform process in which growth-enhancing policies emerged from competition between promarket and conservative factions in Beijing.