Expectation of Power, Protective Umbrella, Or Both: Investigating the Heterogeneous Effect of Power on Provincial Investment in China

Abstract

The literature suggests that dictators allocate resources to loyal supporters and protect them from political attacks. However, it has not distinguished between the dictator’s resource allocation and rational allocation by economic actors in anticipation of a new leader. We theorize that rational expectation in authoritarian political economy has its greatest impact on the cross-sectional distribution of resources rather than over-time growth or inflation. To test this, we take advantage of the time disparity between a clear sign of Xi Jinping’s becoming the next Chinese Communist Party General Secretary in October 2010 and his assumption to power in November 2012. Real estate and transportation infrastructure investment increased in provinces with factional tie to Xi following this sign, but before Xi had gained formal authorities to allocate resources himself. Additionally, the expectation of protection from Xi had a separate, positive effect on real estate investment in the midst of an anti-corruption drive.