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Essays on political economy and development

Xiao, Kezhou (2021) Essays on political economy and development. PhD thesis, London School of Economics and Political Science.

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Identification Number: 10.21953/lse.00004253


This thesis contains three independent research papers on political economy of development with a unified focus on leadership and decision makings within real world environments. The first chapter deals with country-cross experience using authoritarian turnovers, defined as a transition within nondemocratic regimes, as natural experiments. The final two chapters consists of China-based papers within contemporary historical context, i.e., the period since China’s reform and opening in the late 70s. The second chapter investigates the wealth creation and accumulating class, pinned down by global billionaires, people who have estimated wealth exceeding 1 billion U.S dollars based on Forbes’ database. The final chapter considers a critical theoretical along with a political struggle between two competing views on the interplay between market economy and socialism in the mid 80s. Using Deng Xiaoping’s southern talk in 1992 as an ending mark of that grand debate over the future institutional course of China, the third chapter seeks to provide a descriptive study on the effect of political shock on the social composition of super rich class in China, utilizing a database compiled from Chinese Academy of Social Science (CASS). Chapter 1, Does Authoritarian Turnover Deliver, using authoritarian turnovers (ATs) as natural experiments, investigates the institutional transition effects from one nondemocratic regimes to another. I ask the following question: does authoritarian turnover produce on average positive growth effects? Using this exercise, I attempt to provide another test on the nexus between democratization and growth. An emerging idea from this research is that authoritarian turnover is as likely to happen as a transition into democracy. To determine this, a new panel dataset from authoritarian regimes 7 between 1950 and 2014 was constructed. My estimates suggest that those authoritarian turnovers have an adverse small average growth effect. This implies that by failing to take into account authoritarian turnovers, democratization literature might have underestimated the effect of transition into democracy. From a decomposition analysis, it is determined that transitions into party regimes can once in a while deliver better outcomes than transitions into other authoritarian systems. In general, however, the transition to party regimes on average cannot deliver a better growth outcome than democratization. Chapter 2, Becoming Global Billionaires from Mainland China: Theory and Evidence, studies the the set of billionaires from mainland China, discusses how their social origins affect their financing patterns. Guided by a proposed conceptual framework relating socio-political backgrounds of the billionaire entrepreneurs to their observable financing decisions, I show, under conditions of an open economy, grassroots billionaire entrepreneurs (e.g., Jack Ma) could attenuate political economy as well as financial frictions via capital injections from foreign venture capitalists. Building a unique database, I find, using a human equation, that (i) the politically unconnected billionaire entrepreneurs financed by foreign venture capitalists are more likely to float their companies outside mainland China (mainly in Hong Kong and the U.S), use offshore financing vehicles, and enter into innovative sectors; and (ii) the politically connected global billionaire entrepreneurs, however, are strongly associated with a record of state-owned enterprise (SOE) restructuring. Chapter 3, Serving the People or the People’s Note: On the Political Economy of Talent Allocation, discusses the welfare-improving impact of Deng Xiaoping’s Southern Talks, through better allocation of talents. An efficient allocation of talents through occupational choice is central to modern economic growth. Removal of developmental barriers unfavorable to entrepreneurship might be a plausible channel for China’s superb economic performance. Using a newly compiled data on China’s Super Rich Persons (CSRP), the regression kink (RK) design reports supportive evidence on the politically induced structural change in the social compositions of entrepreneurs using as an event shock from Deng Xiaoping’s Southern Talks: consistent with pro8 market talent allocation framework (i) the share of super-rich entrepreneur having state sector experience and party membership declines; (ii) the effects on the attributes of the parental father of the entrepreneurs are rather limited. In short, the three chapters as a whole contribute to a study of political economy of development using real world experiences. At the core of each of the chapter, the central theme of the paper is unified under the interactions between decision makings of leaders, whether they are political or business leaders, and institutional environments. In chapter 1, the average effect of authoritarian turnovers, which by definition are associated with replacement of leaders, could be interpreted as selection effects of leaders in that setting. In chapter 2, the minting of Chinese billionaires is more or less made possible by the institutional innovations offered by an open economy in which offshore vehicles and other sets of financial innovations are available. In chapter 3, the shaping of a wealth creation class could be attributable to a political resolution of competing ideals and plans in a unique historical setting.

Item Type: Thesis (PhD)
Additional Information: © 2021 Kezhou Xiao
Library of Congress subject classification: H Social Sciences > HB Economic Theory
J Political Science > JA Political science (General)
Sets: Departments > Economics
Supervisor: Aghion, Philippe and Besley, Timothy

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