Political centralization, career incentives, and local economic growth in Edo Japan

We argue that heterogeneity in political centralization explains local governance. Specifically, the career incentives and promotion prospects of local officials influence how they spend local resources which in turn impacts local economic growth. We utilize the unique historical case of Edo Japan to explore the effect of institutionalized political relations between central and local governments. We argue that fudai daimyos, or political insiders, who had access to important positions in the central administration expended their local resources to benefit their own careers at a cost to local development. We analyze both macro (domain) and micro (village) level data, and use an instrumental variable approach to causally identify the economic consequences of career incentives and promotion prospects. We find that growth in agricultural output was around 10–16 percentage points lower for fudai domains/villages in the Edo Period, which is a magnitude comparable to the difference in growth rates between China and France in the same period.