Promotion Incentives, GDP Manipulation and Economic Growth in China: How Do Sub-National Officials Behave under Performance Pressure?

Abstract

What role do local officials' incentives play in regional economic growth? How do local officials behave under promotion pressure? This paper studies the unintended impact of mayors' promotion incentives on regional economic growth and subnational-level GDP manipulation in China. We employ a regression discontinuity design that accounts for age restrictions in deciding promotions for mayors. We find that when GDP performance is prioritized in officials' promotion evaluations (before 2013), mayors' promotion incentives significantly increase the statistical GDP growth rate by 3.4 percentage points. However, their effects on nighttime light and other non-manipulable real economic growth indicators are close to zero. This gap can be attributed to GDP manipulation under our empirical framework. The above pattern no longer persists after 2013, when the role of GDP statistics in mayoral promotions was reduced. Our findings indicate that GDP manipulation makes performance-based competition between mayors devolve into a data manipulation game. Further analyses suggest a dynamic pattern of GDP manipulation, and that GDP manipulation hampers officials' accountability.

Keywords: promotion incentive, regression discontinuity design, GDP manipulation, economic growth

JEL Classification: H11, H77, O43, P16