The Price of Losing Autonomy: Assessing the Economic Impact of County-to-District Mergers in China

Abstract

Amalgamations in democratic settings often result in disadvantages for small and peripheral units, as their political power diminishes in the merged jurisdictions. This article extends the discussion to China by assessing the economic outcomes of county-level units after their conversion into districts directly controlled by city authorities. Leveraging a large county-year panel dataset and employing an advanced causal effect estimator, my analysis reveals a generally less optimistic outlook for these county-turned districts following the mergers. The negative impacts are initially evident in microeconomic indicators, especially in resident deposits, and later materialize in the long-term trajectories of macroeconomic indicators. Furthermore, heterogeneous analysis and a comparative case study in Hangzhou city link the problem to the loss of administrative autonomy. Notably, the negative impacts are less likely to manifest in county-turned districts that are under provincial protection and therefore maintain a certain degree of administrative autonomy after the mergers.