APPLIED MICRO: The Origin and Diffusion of Policy Ideas in China; Dr Shaoda Wang (University of Chicago)

Abstract: 

Drawing on two decades of Chinese policy documents and government work reports, we document over 116,000 distinct policy ideas and trace their complete life cycles. Our analysis reveals three main findings. First, in the 2000s, policy innovation was highly decentralized—more than 80% of ideas originated from local governments, driven primarily by local officials. Second, after 2013, the central government shifted its incentives by ceasing rewards for bottom-up innovation and instead promoting the diligent enforcement of centrally assigned policies, leading to significant centralization of policy innovation. Third, focusing on industrial policies, we highlight tradeoffs between centralization and decentralization. Top-down industrial policies tend to be less aligned with local comparative advantages and are less effective at spurring industrial growth, revealing the cost of centralization. Conversely, under decentralization, strategic competition among local politicians can distort policy diffusion, reducing the fit between policies and local contexts and undermining their effectiveness. Quantitatively, our results indicate that since 2013, the costs of centralizing policy innovation in China have far outweighed its benefits.