FSS-DECO seminar: Bottom-Up Institutional Change and Growth in China

Speaker: Prof. Xiaodong ZHU, Chair Professor of Economics, Faculty of Business and Economics, University of Hong Kong

Date: 27 Aug 2025 (Wednesday)

Time: 14:00-15:15

Language: English

Venue: E21B-G016

Abstract: This paper investigates the formation and dissemination of key reform policies and their relationship to economic growth in China. Utilizing a unique dataset on county-level major events, we document variations in the relative importance of top-down directives from the central authority versus bottom-up initiatives by local political entrepreneurs across different reforms. Our findings indicate that bottom-up reforms tend to incur higher political risks, are negatively correlated with local fiscal capacity, and receive fewer central government inspections prior to the local reforms. Learning and suitability considerations play a crucial role in the spatial diffusion of reforms, particularly those originating from the bottom up. We observe that the innovations and diffusion of reform policies are positively correlated with GDP growth. Furthermore, the sources of growth vary across different types of reforms: bottom-up policy changes are linked to positive Total Factor Productivity growth, while centrally sponsored local policy experiments are associated with higher rates of fixed-capital investment. Consistent results are obtained when exploring alternative outcome measures of economic development, including structural transformation from the agricultural to the non-agricultural sector and the entry of private firms.