Decentralised Governance and Empowerment of County Governments in China: Betting on the Weak or the Strong?

Abstract

Decentralised economic development initiatives empowering local governments have gained currency in both developed and developing contexts. The empowerment of county governments in China is a case in point. This study uses difference-in-differences (DID) and the fixed-effects model with panel data (1997-2008) in counties in Zhejiang Province to empirically investigate the different impacts of the empowerment reform on county economies and fiscal revenue (FR). The results reveal that the reform has not promoted county economies as expected but has significantly increased FR. The reform has had a larger impact on less developed counties than on developed ones, which suggests a positive outcome of this decentralization policy in China with regard to revenue generation. This study on county empowerment in Zhejiang Province provides some policy implications for other regions in China or developing countries.