Anti-corruption shocks, political incentives, and regional economic development in a developmental state

Abstract

This study examines the impact of anti-corruption campaigns on regional economic development in a developmental state with weak market-supporting institutions. By leveraging staggered investigations of city leaders’ political patrons amid the recent corruption crackdown in China, we find that cities led by officials connected to investigated high-ranking officials experience a notable decline in economic performance. This decline is most plausibly attributed to diminished corruption-induced efforts by local officials in various government-led economic activities, including land sales, government procurement, and public infrastructure investment. However, we find that local governments place greater emphasis on environmental protection, and several welfare indicators, including air quality, improve significantly following the shock. We rule out alternative explanations such as unfavorable market responses or decreased support from higher-level governments. Further analysis reveals that local leaders achieving superior economic performance after their patrons’ downfall would face worse career prospects. Our findings highlight that China’s anti-corruption campaign has helped transform the development model of local governments from a corruption-driven, growth-oriented one to one centered on high-quality development with a stronger focus on welfare.