Proposal preview

State Capacity and Economic Development: Historical Experience from China

In recent years, state capacity has become one of the most discussed concepts in development economics and political economy. Many economists have highlighted the importance of state capacity in explaining why some countries have achieved economic development but others not (e.g., Acemoglu and Robinson, 2016; Besley and Persson, 2010, 2011; Dincecco and Katz, 2014; Johnson and Koyama, 2017). Most studies, however, focus on the European experience. Much less is known for other important cultures, in particular China that has the longest imperial regime in global history.
China provides a unique historical context of state capacity. Different from Europe whose rise from the 16th to 19th centuries was allegedly attributed to its political fragmentation (Montesquieu, 1989; Jones, 2003; Mokyr, 1990), China retained a unified empire with political centralization and sophisticated administrative institutions for millennia. In this connection, it should be meaningful to examine the role of state capacity in China’s political and economic development in the long run.
The session consists of five papers. The first paper, entitled “Building State Capacity for State Formation: A Quantification of Pre-Qin Case” (Dong and Guo, 2017), discussed the formation of state capacity in the pre-Qin period (the Spring and Autumn period (770BC-481BC) and the Warring States period (480BC-221BC)), which represents an important political transformation—from feudalism to bureaucracy in ancient Chinese society. Using the wars as a proxy for fiscal capacity, they find that the establishment of county had a positive effect on a state’s capacity to wage offensive wars and/or the odds of defeating the external invasion. This suggests that, compared with the aristocracy, the bureaucracy could substantially improve a state’s fiscal capacity in ancient China. In the second paper titled “Geography, Political Integration, or Both: How China Became Chinese”, Kung, Li and Lin (2016) attempt to examine the question “How China became Chinese” mentioned by Jared Diamond (1997) in Gun, Steel and Germs. They find that, by providing public good in education and irrigation political integration (measured by the duration of the system of prefectures and counties) has a positive effect on the distribution of Han Chinese. In the third paper, “State Capacity and Economic Development: Evidence from Transforming Local Governance in Late Imperial Southwest China”, Li and Lin (2017) study the short- and long-term effects of local governance institutions on economic development. Using the reform of the bureaucratization of native officers in Southwest China in the Qing Dynasty as a historical experiment, they find that population density and human capital became much higher in the reform-regions relative to the other places that were still in a traditional Tusi (土司) system, and this difference persisted even after the end of the Qing dynasty. They also find that that the observed effect is mainly through the channel of immigration (from the China Proper to the southwest frontier) and local governments’ public good provisions.
The last two papers discussed the effect of state capacity on financial market in late imperial China. In the paper titled “Oversea Silver Inflow and the Price Revolution in Qing China”, Hu, Zhao and Zhu (2017) attempt to exams the so-called price revolution hypothesis in the late imperial China, using a panel data including 38 prefectures from 1749 to 1898. They find that the inflow of oversea silver significantly raises the rice price in southeast China while not in South-west China. In addition, they also find that the impact of price revolution is relatively weaker in magnitude compared with the European price revolution. In the last paper “Hometown Favoritism and Financial Development: Evidence from Late Imperial China” (Diao, Hu, and Ma, 2016), the authors examine a puzzling feature in late imperial China, that is, why an ever prosperous native banking sector (piaohao) declined rapidly after the end of the dynastic rule (1911). Drawing upon a unique data of bank branches in 17 provinces between 1823 and 1927, they find that the number and business of the branches increased significantly in provinces where the provincial officials came from the hometown of the bank head office. But ironically, these provinces experienced a greater decline of branches after the Qing dynasty collapsed. These results suggest a strong effect of officials’ hometown favoritism in banking development in a historically autocratic regime.


  • Nan Li, Shanghai University of Finance and Economics,, China
  • Chicheng Ma, University of Hong Kong,, China

Session members

  • Baomin Dong, Henan University,
  • Nan Li, Shanghai University of Finance and Economics,
  • Youhong Lin, Guangdong University of Foreign Studies,
  • Chicheng Ma, University of Hong Kong,
  • Hongjun Zhao, Shanghai Normal University,

Proposed discussant(s)

  • Ying Bai, Chinese University of Hong Kong,
  • Tuan-Hwee Sng, National University of Singapore,
  • Cong Liu, Shanghai University of Finance and Economics,
  • Se Yan, Peking University,
  • Yu Hao, Peking University,