Administrative Decentralization, Fiscal Decentralization and China’s Economic Growth——Evidence from County Data

Since the reform and opening-up, China has experienced rapid economic growth. Existing literature mainly attributes the resulting economic achievement to the adjustment of central-local relations—fiscal decentralization. However, such strand of literature ignores another important perspective of central-local relations, namely, administrative decentralization. This paper aims to compare and examine the effects of these two kinds of decentralization through a unified framework. Based on the data from 2000 to 2010 of counties implementing the EPSC (Expanding and Strengthening Power of County) reform and using geography-matching and difference-in-differences approaches, we find that administrative decentralization significantly stimulates county economic growth. Specifically, administrative decentralization can explain 3%~5% of real GDP growth over the entire reform period. In terms of the mechanisms, administrative decentralization mainly promotes economic growth by expanding the expenditure on the local infrastructure and improving the efficiency of fiscal expenditures.