When History Matters Little: Political Hierarchy and Regional Development in China, 1000-2000 AD

Talk Description: Regime changes in China between AD 1000 and 2000 systematically altered the relative importance of different regions in the political hierarchy of that time. The evolution of Chinese provincial capitals and economic activities during this period throws light on how political factors shape economic geography. Employing a panel dataset across 261 prefectures, we find that while a prefecture definitely benefits from gaining provincial capital status in terms of population density and urbanization, the economic advantage of provincial capital prefectures shrinks greatly after losing capital status — implying that a prestigious past does not always matter for current local development. This finding differs from a large body of literature concerning path dependence. To understand the underlying factors, we document that not only public offices but also important production factors such as human capital and transportation networks alter their geographical location with the change in provincial capital status, which suggests that: 1) We cannot simply consider provincial capitals as consumption-intensive “parasite cities”; and 2) The state can play a critical role in overcoming the inertia in the location of economic activity through providing infrastructure.