Interaction Between Public Policies and Institutions : the Case of Poverty Reduction in China

Institutions are argued to be the fundamental reason for variations in economic growth in different countries by some economists. Others argue that context-specific policies such as trade policies or industrial policies are more effective to promote economic growth. In this paper, we contribute to the debate by comparing the economic performances among over 200 national-level poverty-stricken counties between the late 1990s and 2010s in China. For these counties, the initial conditions were similar in the 1990s, and variations of institutions were controlled. To tease out the effect of poverty reduction policies, we exploit two exogenous sources of variation in the context of poverty reduction in China. First, the government expenditure on transportation infrastructure increased significantly after a new national guideline was released in 2001. Second, counties located in the eastern region were removed from the list of national-level poverty-stricken counties in 2001. We find that the variations of economic performance among national-level poverty-stricken counties have increased nationwide as well as at the provincial level since the early 2000s. We interpret that the variations in the economic growth of these poverty-stricken counties are the results of the interaction of the institutions of economic decentralization and poverty reduction policies