The Political Economy Consequences of China's Export Slowdown
We study how adverse economic shocks influence political outcomes in authoritarian regimes in strong states, by examining the 2013-2015 export slowdown in China. We exploit detailed customs data and the variation they reveal about Chinese prefectures’ underlying exposure to the global trade slowdown, in order to implement a shift-share instrumental variables strategy. Prefectures that experienced a more severe export slowdown witnessed a significant increase in incidents of labor strikes. This was accompanied by a heightened emphasis in such prefectures on upholding domestic stability, as evidenced from: (i) textual analysis measures we constructed from official annual work reports using machine-learning algorithms; and (ii) data we gathered on local fiscal expenditures channelled towards public security uses and social spending. The central government was subsequently more likely to replace the party secretary in prefectures that saw a high level of “excess strikes”, above what could be predicted from the observed export slowdown, suggesting that local leaders were held to account on yardsticks related to political stability.
We thank Matilde Bombardini, Loren Brandt, Rafael Dix-Carneiro, Gordon Hanson, Thierry Mayer, Nina Pavcnik, Andres Rodriguez-Clare, Guillem Riambau, Daniel Trefler, Bernard Yeung, and Noam Yutchman for their valuable comments, as well as audiences at the Australasian Trade Workshop (Auckland), Workshop on Trade and the Chinese Economy (Stanford), ABFER Annual Conference, Cities and Development Conference at Harvard, SMU-NUS-Paris Joint Workshop, Chinese University of Hong Kong, IADB, Johns Hopkins SAIS, Kiel Centre for Globalization, Michigan, Yale, UC San Diego, Wisconsin, World Bank -- University of Malaya, and INSEAD. Yuting Huang, Wei Lu, Han Loong Ng, Jocelyn Tan, Venetia Wong, and Jiajia Yao provided stellar research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.