Political uncertainty and high-quality economic development: Evidence from China

Abstract

We manually collated data on the turnover of party secretaries and mayors in 285 Chinese cities from 2003 to 2016 and calculated the quality of city economic development represented by environmental total factor productivity growth. We find that the political uncertainty caused by official turnover could significantly promote the improvement of the quality of economic development, and this positive can explained by the progress of production technology and government intervention. Moreover, the political uncertainty caused by the turnover of more educated officials, those with local hukou, promoted officials, and experienced officials could better promote high-quality economic development.

Keywords

political uncertainty high-quality economic development environmental total factor productivity technological innovation government intervention China

Introduction

In the stage of extensive development, although China's economy has achieved tremendous growth, it is at the cost of the massive consumption of natural resources and the excessive discharge of environmental pollutants. The massive consumption of natural resources has made China's extensive economic development model unsustainable, and the excessive discharge of environmental pollutants has led to the destruction of ecological civilization and more people suffering from respiratory diseases.

The report of the Twentieth National Congress of the Communist Party of China pointed out that ‘promote the effective improvement of the quality and the reasonable growth of the quantity of the economy and establish and implement the concept that green waters and green mountains are golden mountains and silver mountains, and plan for development at the height of harmonious coexistence between human and nature’. With the transformation of China's economy from extensive development to high-quality development, the Chinese government has also put forward higher requirements for the quality of economic growth, that is, to achieve the conservation of natural resources and the reduction of environmental pollutant emissions on the premise of maintaining necessary economic growth.

The extensive and low-quality development of China's economy is related to the central government's evaluation mechanism for the promotion of local government officials. China implements a model of fiscal decentralization and vertical management. In other words, local government officials have greater autonomy in the process of developing the local economy. They can implement personalized economic growth models through the issuance of taxes, subsidies and industrial policies and an important indicator of whether the central government can promote local government officials is the economic growth of local government officials during their tenure. This has led to local government officials, in order to achieve promotion, would use their rights during the short term of office, concentrating a large number of resources to give priority to the development of the local economy, and even sacrificing the local ecological environment. Under this promotion assessment mode, some local government officials have also formed the awareness of ‘promotion championship’, and even attracted foreign investment by actively reducing environmental regulation standards, and achieving more rapid growth of the local economy through ‘bottom-to-bottom competition’. Since in the extensive development stage, officials would sacrifice the ecological environment to obtain economic growth (low-quality development) during their tenure, will the uncertainty of policies generated during official turnover improve the quality of economic development by reducing the consumption of resources and the emission of environmental pollutants?

At present, there is few studies on the impact of political uncertainty caused by official turnover on the quality of economic development. More literature has focused on the impact of political uncertainty on economic growth, or the impact of political uncertainty on the ecological environment, while little literature has focused on the impact of political uncertainty on the degree of coordination between economy and environment, or the impact on the quality of economic development. This topic is very important for China because it is not only related to the governance mode of local government officials and the happiness of residents’ lives but also related to the efficiency of China's economic transformation to high-quality development.

Intuitively, the relationship between political uncertainty caused by official turnover and the quality of economic development is simple. On the one hand, during the extensive development period, to obtain a large amount of economic output in the short term, local government officials would invest a large number of resources into the development of the economy, playing the role of ‘grabbing hands’; On the other hand, some local government officials would focus more on maintaining the sustainable production of local energy-consuming and high-polluting enterprises rather than promoting the R&D investment of local enterprises because of the large investment required for technological progress, long return period and unstable innovation results. During the official turnover period, the uncertainty of the policy made the local enterprises with high energy consumption and high pollution dare not discharge at will. Meanwhile, with the weakening of the ‘grabbing hands’ function of some local governments, some enterprises were able to convert part of the production investment into technology research and development investment, thus promoting the progress of production technology. In addition, the political uncertainty generated during the official turnover period would also make the local government strengthen the role of ‘helping hands’, especially the greening process in the promotion evaluation process of officials, which would enable the local government to support the green industry and environmental protection departments during the period of political uncertainty. These measures may achieve the improvement of production efficiency and the mitigation of environmental pollution, and ultimately achieve high-quality economic development.

We specifically discuss whether political uncertainty affects high-quality economic development. Based on manually collecting information on the mayors and party secretaries of 285 prefecture-level cities in China from 2003 to 2016, we find that political uncertainty significantly contributes to high-quality economic development, which is supported by a series of robustness tests. Moreover, the results show that higher education, local household registration, older age and regular session mayor turnover can further promote high-quality economic development. The mechanism analysis suggests that the promotion effect of political uncertainty on high-quality economic development is mainly achieved by promoting technological innovation and strengthening government intervention.

The findings in this paper have two important contributions. First, we are among the first to study the impact of political uncertainty caused by official turnover on the quality of economic development. Traditional literature mostly focuses on the impact of political uncertainty on economic growth or the ecological environment, while we aimed at the impact of political uncertainty on the coordinated development of the economy and environment (quality of economic development). Second, we calculated the quality of economic development at the city level more accurately, finding that during the extensive development period, the political uncertainty caused by official turnover would promote the improvement of the quality of economic development. Also, we explain the potential mechanisms by which political uncertainty promotes quality development, providing insights for the subsequent literature.

The remainder of the paper proceeds as follows. ‘Literature Review’ section reviews the research results of relevant literature. ‘Theoretical hypotheses’ section puts forward the research hypothesis. ‘Econometric Model and the Data’ section designs the empirical model. ‘Results’ section discusses the empirical results. ‘Conclusion’ section concludes the paper.

Literature review

The existing literature studies the impact of political uncertainty on the economy and the environment, respectively. At the macroeconomic level, Su et al.¹ proposed a ‘championship theory’ to explain the rapid growth of China's economy. According to this theory, the ability of the central government to set growth targets plays a crucial role in growth, because political promotion is largely based on local economic growth. Zhang and Qian² examined the impact of official turnover on capital flow by using the data of provincial party secretary turnover and capital flow between regions in China. They found that in the year of official mobility, the amount of funds flowing into the province was small. Earle and Gehlbach³ used the census-type panel data of more than 7000 manufacturing enterprises to study the impact of political turnover on economic performance. They found that under the background of a weak system, a political replacement can produce a significant distribution effect, which is reflected in economic productivity. Li and Zhou⁴ provided empirical evidence on the incentive effect of personnel control in China after the reform by using the data of the resignation of provincial leaders in China from 1979 to 1995. They found that the possibility of promotion of provincial leaders increases with their economic performance, while the possibility of resignation decreases with their economic performance. These theoretical documents emphasize the role of political incentives of government officials in promoting local economic growth. In order to comprehensively examine the impact of official turnover on economic quality, Ji et al.⁵ used data from 282 prefecture-level cities in China to test the impact of the change of city secretaries on urban economic efficiency. The results show that official mobility has a negative impact on urban economic efficiency. The change of core officials mainly inhibits urban economic efficiency by reducing the quality of credit and the efficiency of land resource allocation.

At the micro-enterprise level, Julio and Yook⁶ recorded that the investment cycle of enterprises around the world corresponds to the time of national elections. They found that in the election year, compared with the non-election year, enterprises reduced their investment expenditure by 4.8% on average. They believed that political uncertainty led enterprises to reduce their investment expenditure until the election uncertainty was resolved. In other words, political uncertainty is an important channel for the political process to affect the actual economic results. Jens⁷ used the U.S. governor election as an example to study the relationship between political uncertainty and corporate investment, finding that before all elections, the investment fell by 5%, and the investment in the sub-sample of companies particularly vulnerable to political uncertainty fell by 15%. Given that political uncertainty greatly affects investment decisions at the enterprise level, Francis et al.⁸ studied whether and how political uncertainty affects the bank loan costs of enterprises, concluding that fluctuations in the political environment would impose additional costs on loan contracts. Using the turnover data of government officials in 277 Chinese cities collected manually, An et al.⁹ explored the effect of political uncertainty on enterprise investment in the transition economy. They found that the political uncertainty would cause enterprises to significantly reduce their investment, especially when the new officials were outsiders appointed by the superior government. The impact of political change on enterprise investment is greater for state-owned enterprises, capital-intensive enterprises and local important enterprises.

As for the impact of political uncertainty on the environment, Niu and Zhou,¹⁰ based on a large sample of 13321 Chinese listed companies from 2000 to 2017, examined the impact of political uncertainty caused by the replacement of government officials on corporate environmental investment. They found that political uncertainty led enterprises to reduce environmental investment. When enterprises have strong political connections, the negative correlation between political uncertainty and environmental investment will strengthen, but it will weaken in the more developed institutional environment. Chen and Gao¹¹ studied the relationship between political resignation and pollution emissions (PEs) of listed companies in China. The results show that political turnover was related to more firm PEs, especially when newly appointed officials were promoted or normally transferred locally. In addition, more frequent political turnover is related to more PEs. Zhu and Yang¹² believed that the uncertainty caused by the change of officials often had an impact on the PEs of regional enterprises. They used the 2004–2014 China Industrial Enterprise Database and the Pollution Emissions Database to investigate the impact of official resignation on the PEs of enterprises. They found that the turnover of officials significantly reduced the PEs of enterprises in that year, while the impact of the turnover of officials from economically developed areas to economically backward areas and from economically backward areas to economically developed areas on the PEs of enterprises was significantly different. He and Chen¹³ used data from 282 prefecture-level cities in China from 2015 to 2019 to study the impact and mechanism of local government officials’ resignation on local air quality. They found that the replacement of local government officials led to the decline of local air quality, which was mainly due to the ‘responsibility gap period’. They also found that the shorter the ‘duty gap’, the lower the air pollution during the official replacement period.

Theoretical hypotheses

The impact of political uncertainty on high-quality economic development

We mainly studies the impact of political uncertainty caused by the turnover of party secretaries and mayors at the city level on high-quality economic development. Political uncertainty caused by official turnover means the subversion of the relationship structure on which regional governance relies and the reshuffle of the government–enterprise relationship and resource allocation pattern.^14,15 First, political uncertainty indicates that there is a short-term fault in local political rights. Since the departed officials have already decided, they do not need to continue to use the government's ‘grabbing hand’ to make enterprises carry out extensive development.¹⁶ For new officials, they need to adapt to changes in their positions. The allocation of local resources, policy implementation, leadership and political ecology adjustments require a certain transition period. The fault of local political power makes the local area no longer need to make inefficient production methods such as infrastructure investment and repeated construction,¹⁷ which can play a certain role in improving the coordinated relationship between the economy and the environment.

Second, political uncertainty would also cause uncertainty and discontinuity in policies, which would affect the expectations of local production departments. Since local government officials are local administrative representatives, the promulgation and implementation of local government department policies reflect the will of local officials.⁶ Local government officials can determine the mode of local economic development through the personalized allocation of local resources. However, due to the different policy preferences and administrative styles of different officials, political uncertainty has led to the discontinuity and uncertainty of local policies and also makes the local production model unpredictable.^18,19 During politically sensitive and uncertain periods, polluting industries may reduce production and investment to reduce the administrative penalties they face for emissions, which may help improve the quality of the environment. Therefore, we put forward the first hypothesis:

Hypothesis 1. Political uncertainty is likely to promote high-quality economic development.

Mechanism analysis

We discussed the mechanisms by which political uncertainty affects high-quality economic development in terms of both technological innovation and government intervention.

Political uncertainty and technological innovation

The incentive effect of political uncertainty caused by official turnover on technological innovation is reflected in the following two aspects. First, political uncertainty may break the climate of government–business collusion and promote technological innovation.²⁰ In regions with longer official tenure, the government and local enterprises are more likely to establish long-term partnerships. As political and corporate networks are extended and this network of relationships becomes more stable, the atmosphere of government–business collusion becomes more intense.²¹ Under the protection of local governments, the incentive effect of the market on firms disappears,²² and firms have no incentive to carry out R&D and innovation activities.²³ When local officials turnover, this atmosphere of collusion is broken and inefficient and polluting production practices cannot be condoned. As a result, firms may spend less money on maintaining collusion²⁴ and thus shift more capital to R&D.²⁵ These enterprises may also increase their productivity to avoid the risk of environmental penalties,²⁶ ultimately promoting technological innovation.

Second, the newly appointed officials can use subsidies, taxation and other policies to force the progress of regional production technology.²⁷ Since different officials have different policy preferences and governance styles, the new government is more inclined to formulate development policies different from the previous one. However, due to the lack of awareness of the development status of the local production sector by the newly appointed officials, the existence of information asymmetry may make it difficult for the newly appointed officials to correctly assess the development prospects of the production sector. In order to maximize the allocation of regional resources, local officials will conditionally implement policies such as fiscal subsidies and tax incentives, and even reduce the supply of bank credit. To compete for limited subsidies, taxes and other policy resources, various production departments will also increase R&D investment to achieve technological innovation,²⁸ show their development potential to the new government and obtain policy support from the new government.²⁹ Taken together, we propose our second hypothesis:

Hypothesis 2. Political uncertainty may contribute to high-quality economic development by promoting technological innovation.

Political uncertainty and government intervention

Political uncertainty caused by official turnover can also promote high-quality economic development by enhancing government intervention. Government intervention can promote green economy development³⁰ by balancing the dual objectives of environment and economy.^31,32 The reinforcing effect of the political uncertainty caused by official turnover on the government's ‘helping hand’ intervention is mainly reflected in the following two aspects.

On the one hand, political uncertainty helps weaken the role of government ‘grip’. In the context of the promotion tournament system and local government competition, local governments adopt a crude and inefficient approach to promote short-term economic growth, which is unsustainable and contrary to the goal of green development. Instead, incoming officials may adopt new incentives to promote economic quality improvement, such as incentives or subsidies for technological innovation or energy efficiency reduction in the production sector.^33,34

On the other hand, the government intervention brought by political uncertainty also helps to optimize resource allocation and promote high-quality economic development. The improved market-oriented institutional environment brought by official turnovers may reduce the excessive investment of fiscal and financial institutions in some sectors. Based on the assessment of the development potential of enterprises, resources flow more to sectors with development potential, such as high technology, which helps achieve the optimal allocation of limited local resources.

Additionally, political uncertainty contribute to maximizing social utility through the rational allocation of resources among production sectors, technological advancement sectors and environmental regulation sectors. For example, a new government usually strengthens restrictive policies such as environmental regulation to increase the burden of environmental costs of enterprise production to improve environmental quality.³⁵ In particular, the political uncertainty associated with official turnover may lead to stricter environmental regulation when there is significant corruption among former officials.¹⁶ Therefore, we proposed the third hypothesis:

Hypothesis 3. Political uncertainty may contribute to high-quality economic development by strengthening government ‘helping hand’ intervention.

Econometric model and the data

Econometric model

In order to accurately identify the causal relationship between political uncertainty and the quality of economic development, and to understand the mechanism of political uncertainty affecting the quality of economic development, we set the baseline regression model (equation (1)) and the mechanism analysis model (equation (2)), respectively:

Q u a l i t y_{i t} = α_{0} + α_{1} U n c e r t a i n t y_{i t} + α_{2} C o n t r o l_{i t} + α_{3} δ_{i} + α_{4} γ_{t} + ε_{i t}

(1)

M e c_{i t} = β_{0} + β_{1} U n c e r t a i n t y_{i t} + β_{2} C o n t r o l_{i t} + β_{3} δ_{i} + β_{4} γ_{t} + ε_{i t}

(2)

where subscript i represents the city and t represents the year. Quality_it indicates the quality of economic development represented by environmental total factor productivity (ETFP). Uncertainty_it donates whether city i has political uncertainty in year t due to official turnover. Mec_it indicates mechanism variable.

α_{1}

is the key coefficient that we focus on and is used to reflect the average impact of political uncertainty caused by official turnover on the quality of economic development. Control_it refers to control variables.

δ_{i}

is the city fixed effect and

φ_{t}

is the year fixed effect.

ε_{i t}

represents the random error term.

Variables and data sources

Quality. We used ETFP to characterize the quality of economic development. In an economy, the lower the input of natural resources required to achieve a unit of GDP growth and the lower the emission of environmental pollutants, the higher the production efficiency and development quality of the economy. According to Afsharian and Ahn,³⁶ Malmquist,³⁷ Pastor and Lovell³⁸ and Zhou et al.,³⁹ we use the indicator of ETFP to characterize the quality of economic development. ETFP could include the input factors (such as human capital, material capital and natural resources), desired output (such as GDP growth) and undesired output (such as emissions of carbon dioxide, PM_2.5 and other environmental pollutants) in the production process into the same framework for analysis and could reflect the coordination degree and production efficiency between the input factors, desired output and undesired output. Therefore, it is used by more and more researchers to characterize the quality of economic development.⁴⁰ This paper selects the most important secondary energy (electricity) to represent energy input,^41,42 as well as a labour force to represent labour input and capital stock to represent capital input. Desired output factors include GDP, and undesired output factors include industrial wastewater discharge, solid waste, PM_2.5 concentrations and carbon dioxide concentration,^43,44 where the PM_2.5 concentrations data comes from the satellite light data measured by Columbia University using NASA satellites, and the data on carbon dioxide concentration comes from China emission accounts & datasets using satellite light data to calculate the carbon dioxide concentration. Other input–output data are from the China City Statistical Yearbook.

Uncertainty. If the party secretary or mayor turnover in city i in year t, we set Uncertainty_it= 1 to represent political uncertainty, otherwise Uncertainty_it= 0. Information on official turnover comes mainly from Xinhua.com, People's Daily Online and the government websites of each city. Table 1 shows the turnover of party secretaries and mayors. In Panel A, there were 1146 and 1236 turnovers of party secretaries and mayors, respectively. In panel B, party secretaries in the same city had at least two turnovers, and the most had seven turnovers. Most cities have four turnovers, with 118 cities, accounting for 41.40%.

Table 1.

Sample distribution of official turnovers.

Panel A. Official turnovers by year
Year	Party secretary	Proportion	Mayor	Proportion	Both turnovers	Proportion
2003	116	40.70%	129	45.26%	76	26.67%
2004	53	18.60%	62	21.75%	28	9.82%
2005	59	20.70%	57	20.00%	30	10.53%
2006	65	22.81%	79	27.72%	36	12.63%
2007	78	27.37%	103	36.14%	50	17.54%
2008	122	42.81%	119	41.75%	87	30.53%
2009	36	12.63%	38	13.33%	19	6.67%
2010	35	12.28%	38	13.33%	17	5.96%
2011	78	27.37%	96	33.68%	52	18.25%
2012	100	35.09%	106	37.19%	63	22.11%
2013	112	39.30%	112	39.30%	73	25.61%
2014	42	14.74%	44	15.44%	17	5.96%
2015	90	31.58%	86	30.18%	35	12.28%
2016	160	56.14%	167	58.60%	119	41.75%
Total	1146	28.72%	1236	30.98%	702	17.59%
Panel B. Official turnovers by prefecture-level cities.
Times of turnovers		Party Secretary		Proportion	Mayor	Proportion
2		15		5.26%	2	0.70%
3		67		23.51%	59	20.70%
4		118		41.40%	101	35.44%
5		71		24.91%	91	31.93%
6		10		3.51%	29	10.18%
7		4		1.40%	2	0.70%
8		0		0.00%	1	0.35%

Control variables. Referring to the existing literature,^45–47 we selected a series of control variables, including PE, industrial structure (IS), foreign direct investment (FDI), population density (PD), secondary industry development (SID), unemployed persons (UP), internal assets (IA), humidity (Hum) and precipitation (Pre). Specifically, PE is expressed as the proportion of industrial sulphur dioxide emissions in total industrial production; IS is measured by the ratio of the number of employees in the secondary industry to the tertiary industry, and we use the rate of foreign investment to the city's GDP to measure FDI. In addition, PD is measured by the proportion of the total population in the urban administrative area, and SID is the proportion of the output value of the secondary industry to GDP. Unemployed persons are expressed as the total number of unemployed individuals. Internal assets are measured as the share of the output value of the IAs industry in the total industrial output value. The control variables were obtained from the China City Statistical Yearbook, except for two weather variables for which data were obtained from the National Weather Bureau monitoring stations. Descriptive statistics of these variables are given in Table 2.

Table 2.

Descriptive statistics.

Variables	Description	Obs	Mean	SD	Min	Max
ETFP		3653	0.0048	0.0518	−0.4376	0.4187
Uncertainty	0/1	3990	0.4213	0.4938	0	1
Party secretary turnover	0/1	3990	0.2872	0.4525	0	1
Mayor turnover	0/1	3990	0.2098	0.4625	0	1
PE	Tons/10⁴ yuan	4027	0.0097	0.0173	−0.0968	0.3009
IS	%	4031	0.9678	0.6359	0.0470	5.4845
FDI	%	3938	0.0029	0.0032	−0.0131	0.0454
PD	10⁴ person	3990	431.9	305.2	16.37	3392
SID	%	3990	48.65	11.05	9	90.97
UP	Person	3969	25047	31240	0	600501
IA	%	3990	0.855	0.160	0.0283	1
Hum	%	4671	66.489	10.798	29	91
Pre	Mm	4613	1593.3	25474	−173.40	999850

Results

Baseline results

We performed a regression on the ETFP using equation (1). The regression results are shown in Table 3. Column (1) controls the city fixed effect and the year fixed effect, Column (2) further controls other economic variables, while column (3) further controls weather variables on the basis of column (1), and the result shows that political uncertainty could significantly promote ETFP. These results indicate that political uncertainty is indeed an important factor in promoting high-quality economic development in Chinese cities. The results in columns (4) and (5) indicate that the growth of ETFP is mainly caused by the growth of technological progress, while the promotion of efficiency improvement is not significant at the 5% significance level.

Table 3.

Baseline results.

	ETFP			EC	TC
	(1)	(2)	(3)	(4)	(5)
Turnover	0.0023	0.0031**	0.0031**	−0.0008	0.0039**
	(0.0017)	(0.0014)	(0.0014)	(0.0009)	(0.0016)
PE		−0.1170	−0.1325	0.1187***	−0.2512*
		(0.1467)	(0.1377)	(0.0308)	(0.1372)
IS		−0.0104***	−0.0115***	−0.0009	−0.0106***
		(0.0026)	(0.0026)	(0.0008)	(0.0026)
FDI		−0.5517	−0.5946	−0.0491	−0.5455
		(0.5678)	(0.5628)	(0.1853)	(0.4754)
PD		−0.2134	−0.1953	−0.0710	−0.1244
		(0.1797)	(0.1790)	(0.0660)	(0.1937)
SID		0.0042	0.0041	0.0016**	0.0025
		(0.0031)	(0.0031)	(0.0008)	(0.0026)
UP		−0.0303	−0.0299	0.0244	−0.0543
		(0.0415)	(0.0414)	(0.0196)	(0.0322)
IA		0.0009	0.0008	−0.0004	0.0012
		(0.0022)	(0.0022)	(0.0005)	(0.0025)
Hum			0.0011	−0.0017	0.0028
			(0.0037)	(0.0012)	(0.0030)
Pre			0.0051	0.0131***	−0.0080**
			(0.0033)	(0.0010)	(0.0035)
City fixed effect	YES	YES	YES	YES	YES
Year fixed effect	YES	YES	YES	YES	YES
Constant	0.0039***	−0.0020	−0.0078	0.0106	−0.0184
	(0.0007)	(0.0329)	(0.0457)	(0.0091)	(0.0463)
Observations	3640	3548	3486	3486	3486
Adjusted R-squared	0.0245	0.0399	0.0379	0.0303	0.0688
Number of cities	280	277	277	277	277

Note: The values in parentheses are standard errors, and we cluster standard errors to the province level.

***p < 0.01, **p < 0.05, *p < 0.1.

This is mainly because, on the one hand, the political uncertainty caused by the official turnover would have an important impact on the local production model. The discontinuity of policies and the unpredictability of the implementation of the new government's policies would promote local production departments to increase R&D investment, achieve technological innovation and thereby promote high-quality economic development. On the other hand, official turnover also broke the network of the previous government and reduced the possibility of collusion between the government and enterprises. It not only maximizes the use of limited resources but also supports related enterprises through industrial policies, thereby promoting the ETFP. In sum, the Hypothesis 1 is proved.

Robustness checks

Replace ETFP measurement index

The PM_2.5 data, used in the process of estimating the growth of ETFP, is the three-year average estimation of PM_2.5 by Columbia University through NASA satellites. Therefore, the PM_2.5 data is relatively smooth, which may bias the calculation results of ETFP. This paper also uses the PM_2.5 data calculated by Dalhousie University in Canada to test the robustness of the results. Dalhousie University uses NASA satellites to estimate the average annual PM_2.5. This improves the accuracy of PM_2.5 concentration estimation and can also more accurately estimate the growth of ETFP. Columns (1) and (2) of Table 4 report the estimated results of replacing ETFP growth measurement indicators. We found that political uncertainty could still promote ETFP growth at the 5% significant level, which means that the previous results are credible.

Table 4.

Replace variables and models.

	Replace ETFP indicator		PSM
	Replace ETFP indicator		Kernel match	Radius match
	(1)	(2)	(3)	(4)
Turnover	0.0015	0.0027*	0.0035**	0.0034**
	(0.0016)	(0.0013)	(0.0014)	(0.0014)
Control variables	NO	YES	YES	YES
City fixed effect	YES	YES	YES	YES
Year fixed effect	YES	YES	YES	YES
Constant	0.0048***	−0.0423	−0.0019	−0.0018
	(0.0007)	(0.0376)	(0.0463)	(0.0463)
Observations	3640	3486	3476	3476
Adjusted R-squared	0.0193	0.0319	0.0383	0.0383
Number of cities	280	277	277	277

Note: The values in parentheses are standard errors, and we cluster standard errors to the province level.

***p < 0.01, **p < 0.05, *p < 0.1.

Replace estimation model

Although we control the control variables and various fixed effects to obtain more accurate estimates, there are still problems with sample selection bias, such as non-randomness of the sample. In order to eliminate the sample selection bias and obtain a more unbiased estimation result, this paper uses the Propensity Score Matching (PSM) method for estimation. Columns (3) and (4) of Table 4 report the estimation results obtained after using kernel matching and radius matching, respectively. The results show that after alleviating the sample selectivity bias, political uncertainty could still promote the growth of ETFP at the 5% significant level, indicating that the previous results are still robust and credible.

Counterfactual tests

We conducted a counterfactual test of changing the time by advancing the turnover time of party secretaries and mayors by one year. Column (1) of Table 5 shows the regression results after the turnover time is advanced by one year. It can be seen that after artificially advancing the turnover time by one year, the effect of political uncertainty on the high-quality economic development has no evidence of continued promotion, but there is a suppress signs of ETFP, and the significance also becomes insignificant at the 10% significance level. This result proves the credibility of the above conclusion.

Table 5.

Exclude the influence of policy factors.

	GTFP
	(1)	(2)	(3)	(4)	(5)
Turnover	−0.0020	0.0031**	0.0030**	0.0031**	0.0032**
	(0.0016)	(0.0014)	(0.0014)	(0.0014)	(0.0014)
Control variables	YES	YES	YES	YES	YES
City fixed effect	YES	YES	YES	YES	YES
Year fixed effect	YES	YES	YES	YES	YES
Constant	0.0056	−0.0076	−0.0044	−0.0052	−0.0090
	(0.0508)	(0.0465)	(0.0459)	(0.0463)	(0.0462)
Observations	3218	3434	3387	3361	3410
Adjusted R-squared	0.1188	0.1235	0.1182	0.1211	0.1185
Number of cities	276	273	269	267	270

Note: The values in parentheses are standard errors, and we cluster standard errors to the province level.

***p < 0.01, **p < 0.05, *p < 0.1.

Exclude the influence of other confounding factors

We also tried to remove some of the confounding factors. First, we exclude the situation where the political system may overestimate the effects. Considering that the provincial capital city is the political center of a province, a large amount of political resources is concentrated, and the governments at all levels in this province give priority to ensuring the effect of policy improvement in capital cities. Therefore, we exclude the influence of provincial capital cities and municipalities directly under the central government, and the estimated results in column (2) shows that the impact of political uncertainty on ETFP is still robust, confirming the reliability of the regression results above.

Second, we exclude the overestimation that other policies, such as environmental protection, which may have on the results. For example, for the eight most polluted cities in China announced by the World Health Organization in 2016, the ‘Ten Atmospheres’, ‘Three-Year Action Plan to Win the Blue Sky Defence Warfare’ and the ‘Two Control Zones’ policies have imposed strict environmental regulations on some cities, resulting in a significant reduction in the level of environmental pollution in these cities. Since the undesired output of environmental pollution is an important accounting factor for ETFP, its decline has caused the overestimation of political uncertainty affecting ETFP. Column (3) excludes the eight most polluted cities in China, and our results remain unchanged.

Third, we excluded the overestimation that industrial relocation may cause. During the sample period, China's Western Development Plan was in full swing. In the Western development plan, more polluting enterprises and enterprises with low production efficiency in the Eastern region moved to the Western region. For the eastern region, economic development has not been substantially affected, but the pollution level in the eastern region has been relatively reduced. This has caused an overestimation of the effect of political uncertainty. Column (4) shows the estimated results after excluding the industrial cities in the east and supports the reliability of our main results.

Lastly, we excluded cities where official turnover happened too frequently. For example, in Wenzhou and Handan, only four of the 13 years have not been replaced by officials, and the remaining nine years have experienced the turnover of mayor or party secretary. Under such unstable normal conditions, it is difficult or even impossible for industrial enterprises to form collusion with the government. Column (5) excludes the cities with the highest frequency of official turnovers, and the estimation is consistent with previous results.

Mechanism tests

Through the above analysis, the political uncertainty caused by official turnover has a significant role in promoting ETFP. It is known that, based on the previous theoretical analysis, political uncertainty would affect ETFP through technological innovation and the role of the government's ‘helping hand’. Therefore, using equation (2), this paper discusses the impact of political uncertainty on the growth of ETFP from these two perspectives. Specifically, this paper uses the total number of patent applications and the total number of patent authorizations to express the level of regional technological progress based on Waguespack et al.,⁴⁸ Gholipour⁴⁹ and Clò et al.⁵⁰'s approach. The government's ‘helping hand’ support is expressed as the proportion of government science and technology expenditures in government revenue. Table 6 reports the estimation results.

Table 6.

Mechanism tests.

	Patent applications		Patents granted		Science and technology expenditure
	(1)	(2)	(3)	(4)	(5)	(6)
Turnover	0.0157	0.0230**	0.0314**	0.0298**	0.0044	0.0057*
	(0.0109)	(0.0100)	(0.0144)	(0.0130)	(0.0036)	(0.0033)
Control variables	NO	YES	NO	YES	NO	YES
City fixed effect	YES	YES	YES	YES	YES	YES
Year fixed effect	YES	YES	YES	YES	YES	YES
Constant	1.2003***	0.1189	0.8506***	−0.3379	0.0507***	0.0626
	(0.0045)	(0.4608)	(0.0060)	(0.5305)	(0.0015)	(0.0685)
Observations	2232	2152	2232	2152	2232	2160
Adjusted R-squared	0.9704	0.9719	0.9676	0.9694	0.1721	0.2990
Number of cities	285	282	285	282	285	282

Note: The values in parentheses are standard errors, and we cluster standard errors to the province level.

***p < 0.01, **p < 0.05, *p < 0.1.

First, we tested the regional technological progress. Columns (1)–(4) of Table 6 suggest that regardless of whether the total number of patent applications or the total number of patent grants is used to express the level of regional technological progress, political uncertainty can promote the level of technological progress. On average, political uncertainty can increase technological progress by about 12% at a 1% significance level. Thus, the Hypothesis 2 is proved.

Second, we tested the role of the government's ‘helping hand’, and the estimated results are reported in columns (5) and (6) of Table 6. The results show that political uncertainty caused by official turnovers can promote the enhancement of the government's ‘helping hand’ at the 5% significance level. Government can stimulate industrial enterprises to carry out technological innovation through industrial policies, while government innovation subsidies are the most direct way.⁵¹ Taken together, the Hypothesis 3 is proved.

All in all, the political uncertainty caused by official turnover can promote ETFP not only by promoting regional technological progress but also by strengthening the government's ‘helping hand’ role.

Heterogeneity analysis

First, we regress the ETFP growth on the subsamples of the party secretary and mayor, respectively. Table 7 reports the estimated results. Through comparison, the mayor turnover has a greater promotion effect on the growth of ETFP regardless of the control variables. On average, the mayor turnover can promote ETFP growth by 0.54% at a 1% significance level. The reason is that the party secretary is mainly engaged in local party affairs, while the mayor is responsible for presiding over the work of the municipal people's government and is in charge of all matters related to economic growth and social development in the jurisdiction. Therefore, the political uncertainty caused by the mayor's turnover has a greater impact on the production department.

Table 7.

Heterogeneity analysis of the party secretary and the major.

	Party secretary		Mayor
	(1)	(2)	(3)	(4)
Turnover	0.0012	0.0015	0.0045**	0.0054***
	(0.0019)	(0.0016)	(0.0018)	(0.0016)
Control variables	NO	YES	NO	YES
City fixed effect	YES	YES	YES	YES
Year fixed effect	YES	YES	YES	YES
Constant	0.0045***	−0.0064	0.0035***	−0.0085
	(0.0005)	(0.0459)	(0.0006)	(0.0454)
Observations	3640	3486	3640	3486
Adjusted R-squared	0.1028	0.1193	0.1041	0.1212
Number of cities	280	277	280	277

Note: The values in parentheses are standard errors, and we cluster standard errors to the province level.

***p < 0.01, **p < 0.05, *p < 0.1.

Second, since the influence of the party secretary is not significant, we proceed from the perspective of the mayor's individual characteristics to study the impact of its turnover on the ETFP, and the regression results are shown in Table 8. Columns (1) and (2) report the heterogeneity of the mayor's education background, and we find that the appointment of a mayor with a high degree of education can improve ETFP by 0.66% at the 1% significance level. The possible explanation is that highly educated officials have a longer-term vision, not only promoting economic development but also taking into account the coordinated development of the economy and the environment.

Table 8.

Heterogeneity analysis of individual characteristics of officials.

Panel A. Education and hometown
	Education		Hometown
	Non-graduate	Postgraduate	Non-local	Local
	(1)	(2)	(3)	(4)
Turnover	0.0021	0.0066***	0.0034	0.0062***
	(0.0035)	(0.0017)	(0.0047)	(0.0015)
Control variables	YES	YES	YES	YES
City fixed effect	YES	YES	YES	YES
Year fixed effect	YES	YES	YES	YES
Constant	−0.0015	−0.0177	0.0105	−0.0234
	(0.0467)	(0.0434)	(0.0453)	(0.0458)
Observations	2650	3285	2629	3306
Adjusted R-squared	0.1281	0.1270	0.1260	0.1263
Number of cities	275	277	275	277
Panel B. Turnover type and age
	Turnover type		Age
	Normal	Abnormal	Young	Old
	(5)	(6)	(7)	(8)
Turnover	0.0052***	0.0057*	0.0043	0.0058***
	(0.0016)	(0.0032)	(0.0030)	(0.0018)
Control variables	YES	YES	YES	YES
City fixed effect	YES	YES	YES	YES
Year fixed effect	YES	YES	YES	YES
Constant	−0.0185	−0.0004	−0.0156	−0.0055
	(0.0459)	(0.0448)	(0.0465)	(0.0435)
Observations	3325	2610	2677	3258
Adjusted R-squared	0.1253	0.1289	0.1289	0.1259
Number of cities	277	275	276	276

Note: The values in parentheses are standard errors, and we cluster standard errors to the province level.

***p < 0.01, **p < 0.05, *p < 0.1.

In columns (3) and (4), compared to the mayor with a household registration in other areas, the mayor with a local household registration can improve the ETFP more effectively. The possible explanation is that Local officials have a better understanding of local developments so that they can promote the growth of local ETFP more efficiently.

Columns (5) and (6) examine the impact of the normal turnover on ETFP. Abnormal transitions mainly include being arrested due to corruption, bribery and crime, other circumstances are considered normal transitions. We learn that the normal turnover of the mayor has a greater and more significant effect on ETFP. On average, it can increase the ETFP by 0.52%, while the abnormal turnover of the mayor's role in promoting ETFP is not significant at the 5% significance level. The possible explanation is that officials who have been dismissed due to corruption and bribery are more likely to develop the economy at any environmental cost.

Columns (7) and (8) explore the impact of official turnover at different ages on the growth of ETFP and find that turnover in older officials is more likely to promote the growth of ETFP. Older officials have less motivation for promotion and want to gain a good reputation after retirement, so they will pay more attention to the high-quality development of the economy, and improve the quality of life of residents while developing the economy.

Conclusion

The existing literature has paid attention to the impact of political uncertainty on the economy or the ecological environment, respectively, but has not paid attention to the impact of political uncertainty on the quality of economic development, which is the most critical issue in the process of China's economic transformation to high-quality development. Although our focus is on China's issues, the coordination between economic development and environmental protection requires policy guidance whether in developed or developing countries. Therefore, the impact of political uncertainty on the quality of economic development cannot be ignored. The model in this paper could be used in related studies, while the conclusions could also provide a reference for other developed and developing countries.

First, the central government should speed up the greening process of the evaluation and promotion of local government officials. The promotion and assessment system of local government officials, which takes GDP growth as the main indicator, makes local government officials to achieve huge economic growth in a short period of time and meets the promotion requirements, even at the cost of sacrificing the environment and lowering environmental regulatory standards. We found that political uncertainty caused by official turnover can promote high-quality economic development. Therefore, the central government could appropriately add indicators related to the greening process in the process of promotion and assessment of local government officials, so that local government officials cannot sacrifice the ecological environment without limit in exchange for economic growth. At the same time, the central government should also strengthen supervision over local government officials in the process of governance, so as to prevent local governments from forming political ties with local enterprises that are highly polluting and energy-consuming.

Second, government departments should strengthen support for technological innovation and help for environmental protection departments during the official turnover period. Technological innovation is the fundamental driving force to achieve high-quality economic development in the long run, and environmental protection departments can reduce the emission of air pollutants, thus increasing residents’ happiness of life in the short term. We found that the political uncertainty generated during official turnover could promote the progress of production technology and the government's help to the green production sector and the environmental protection sector, so as to improve the quality of economic development. Therefore, even if there is political uncertainty during the official turnover period, local government departments could still encourage industrial enterprises to invest in research and development in the form of industrial policies, subsidies and tax incentives to realize the progress of production technology, and at the same time help green production and environmental protection departments play a bigger role.

Third, the central government should strengthen the study, construction and supervision of the party and government teams of local governments. Through research, we found that the change of highly educated officials, promoted officials rather than demoted officials, and experienced officials could better promote high-quality economic development. Therefore, the central government should urge local government officials to strengthen theoretical study and practice and fully accumulate management experience. On the other hand, the central government should also strengthen the supervision of local government officials and reduce the impact of corruption and other negative events, so as to achieve more efficient and high-quality economic development.

Fortunately, with the proposal of the goal of ‘carbon peaking and carbon neutrality’ and the successful transformation of China's economy to high-quality development, the Chinese government has paid more and more attention to technological progress and the protection of the ecological environment in the process of economic development, and the greening process in the promotion evaluation of local government officials has become increasingly important.

Lastly, there are a few limitations to our study that are worth emphasizing. First, due to our research design, the ETFP calculated in this study is an annual change, which limits our ability to investigate the dynamic relationship between political uncertainty and ETFP at the monthly or daily level. Second, technological innovation is measured by traditional indicators such as the number of patent applications and patents granted, which is too narrow to fully capture the technological level of the entire city.

Footnotes

Acknowledgements

This work was supported by the Chongqing Social Science Planning Major Project: ‘Chongqing Food and Energy Security Research under Major Public Health Emergencies’ (2020ZDJJ02) (Zimin Liu); 2021 Chongqing Social Science Planning Talent Program Project: ‘Research on China's Household Energy Poverty: Monitoring, Mechanism and Governance’ (2021YC016) (Zimin Liu).

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This work was supported by the Chongqing Social Science Planning Major Project, 2021 Chongqing Social Science Planning Talent Program Project, (grant number 2020ZDJJ02, 2021YC016).

ORCID iD

Xing Li

Author biographies

Xing Li, majoring in economics, is a lecturer in the College of Economics and Management at the Southwest University. His areas of interest are environmental economics and policy evaluation. His recent topics include carbon emission, air pollution, and sustainable development. His work has been published in journals like Earth's Future, Energy Policy, Cities, Journal of Business Research, Ecological Indicators, and Environmental Geochemistry and Health.

Chunkai Zhao is an associate professor in the College of Economics and Management at the South China Agricultural University. His areas of interest are empirical microeconomics, human capital, and environmental economics. His work has been published in such journals as China Economic Review, Journal of Business Research, Journal of Happiness Studies, Cities, and Transport Policy.

Boou Chen, majoring in economics, is a lecturer in the School of Economics, Nanjing University of Finance and Economics. His areas of interest are empirical microeconomics, labour economics, agricultural economics. His work has been published in such journals as Teaching and Teacher Education, Cities, Child Abuse & Neglect, and Journal of Policy Modeling.

Zimin Liu, majoring in economics, is a professor in the College of Economics and Management at the Southwest University. His areas of interest are resources and environmental economics. His recent topics include energy poverty, power market, price regulation, and sustainable development. His work has been published in journals like Journal of the American Medical Association, China Agricultural Economics Review, Journal of Integrative Agriculture, and Economic Modelling.

References

Tao

, et al. Local officials’ incentives and China’s economic growth: tournament thesis reexamined and alternative explanatory framework. China World Econ 2012; 20: 1–18.

Zhang

Qian

. The impact of officials’ turnover on interregional capital flows: evidence from China. Appl Econ 2022; 54: 749–763.

Earle

Gehlbach

. The productivity consequences of political turnover: firm-level evidence from Ukraine’s orange revolution. Am J Pol Sci 2015; 59: 708–723.

Zhou

. Political turnover and economic performance: the incentive role of personnel control in China. J Public Econ 2005; 89: 1743–1762.

Liu

Lang

. Assessing the impact of officials’ turnover on urban economic efficiency: from the perspective of political promotion incentive and power rent-seeking incentive. Socioecon Plann Sci 2022; 82: 101264.

Julio

Yook

. Political uncertainty and corporate investment cycles. J Financ 2012; 67: 45–83.

Jens

. Political uncertainty and investment: causal evidence from U.S. Gubernatorial elections. J Financ Econ 2017; 124: 563–579.

Francis

Hasan

Zhu

. Political uncertainty and bank loan contracting. J Empir Finance 2014; 29: 281–286.

Chen

Luo

, et al. Political uncertainty and corporate investment: evidence from China. J Corp Finance 2016; 36: 174–189.

10.

Niu

Zhou

. Political uncertainty and corporate sustainability: how does official turnover affect environmental investment. Asia-Pac J Account Econ 2022.

11.

Chen

Gao

. The effects of three types of China's official turnover on air quality: a regression discontinuity study. Growth Change 2020; 51: 1081–1101.

12.

Zhu

Yang

. The pollution reduction effect of official turnover: evidence from China. Sci Total Environ 2023; 868: 161459.

13.

Chen

. Turnover of local government officials and local air quality. China World Econ 2022; 30: 100–121.

14.

Piotroski

Zhang

. Politicians and the IPO decision: the impact of impending political promotions on IPO activity in China. J Financ Econ 2014; 111: 111–136.

15.

Chen

, et al. Political uncertainty and cash holdings: evidence from China. J Corp Finance 2016; 40: 276–295.

16.

Fredriksson

Svensson

. Political instability, corruption and policy formation: the case of environmental policy. J Public Econ 2003; 87: 1383–1405.

17.

Chen

Luo

, et al. Helping hands or grabbing hands? An analysis of political connections and firm value. J Bank Financ 2017; 80: 71–89.

18.

Kundzewicz

Krysanova

Benestad

, et al. Uncertainty in climate change impacts on water resources. Environ Sci Policy 2018; 79: 1–8.

19.

Workman

Dooley

Lomax

, et al. Decision making in contexts of deep uncertainty - an alternative approach for long-term climate policy. Environ Sci Policy 2020; 103: 77–84.

20.

Shi

Zhang

. Official rotation and corporate innovation: evidence from the governor rotation. China J Account Res 2020; 13: 273–297.

21.

Sun

Song

Xia

. Government-enterprise collusion and land supply structure in Chinese cities. Cities 2020; 105: 102849.

22.

Pond

. Protecting property: the politics of redistribution, expropriation, and market openness. Econ Polit 2018; 30: 181–210.

23.

Hou

Yuan

. Corporate innovation and political connections in Chinese listed firms. Pac-Basin Finance J 2017; 46: 158–176.

24.

Ovtchinnikov

Pantaleoni

. Individual political contributions and firm performance. J Financ Econ 2012; 105: 367–392.

25.

. How does green innovation improve enterprises’ competitive advantage? The role of organizational learning. Sustain Prod Consum 2021; 26: 504–516.

26.

Krammer

SMS

Jiménez

. Do political connections matter for firm innovation? Evidence from emerging markets in Central Asia and Eastern Europe. Technol Forecast Soc Change 2020; 151: 119669.

27.

Wang

Qiao

Ahmed

. Institutional quality, bank finance and technological innovation: a way forward for fourth industrial revolution in BRICS economies. Technol Forecast Soc Change 2020; 163: 120427.

28.

Yin

Zhang

. Enhancing the competitiveness of multi-agent cooperation for green manufacturing in China: an empirical study of the measure of green technology innovation capabilities and their influencing factors. Sustain Prod Consum 2020; 23: 63–76.

29.

Xiao

. Do political connections enhance or impede corporate innovation? Int Rev Econ Finance 2019; 63: 94–110.

30.

Zhou

Qin

Wei

. Government intervention in energy conservation: justification and warning. Energy Econ 2020; 90: 104840.

31.

Chang

Zhou

Liu

, et al.

How does government intervention affect the formation of zombie firms?

Econ Model 2021; 94: 768–779.

32.

Zhang

Liu

, et al. The impact of government intervention on corporate environmental performance: evidence from China’s national civilized city award. Finance Res Lett 2021; 39: 101624.

33.

Acemoglu

Aghion

Bursztyn

, et al. The environment and directed technical change in a North-South model. Am Econ Rev 2012; 102: 131–166.

34.

Aghion

Dechezleprêtre

Hemous

, et al. Carbon taxes, path dependency, and directed technical change: evidence from the auto industry. J Polit Econ 2016; 124: 1–51.

35.

Pang

Shaw

. Optimal emission tax with pre-existing distortions. Environ Econ Policy Stud 2011; 13: 79–88.

36.

Afsharian

Ahn

. The overall malmquist index: a new approach for measuring productivity changes over time. Ann Oper Res 2015; 226: 1–27.

37.

Malmquist

. Index number and indifference surfaces. Trabajos de Estadistica 1953; 4: 209–242.

38.

Pastor

Lovell

CAK

. A global Malmquist productivity index. Econ Lett 2005; 88: 266–271.

39.

Zhou

Ang

Zhou

. Measuring economy-wide energy efficiency performance: a parametric frontier approach. Appl Energy 2012; 90: 196–200.

40.

Zhao

. Did innovative city constructions reduce carbon emissions? A quasi-natural experiment in China. Environ Dev Sustain 2023.

41.

Zhao

. Can national forest city construction mitigate air pollution in China? Evidence from a quasi-natural experiment. Environ Geochem Health 2023; 45: 3003–3024.

42.

Cao

, et al. The impact of environmental accountability on air pollution: a public attention perspective. Energy Policy 2022; 161: 112733.

43.

Wang

. Does transfer payments promote low-carbon development of resource-exhausted cities in China? Earths Future 2022; 10: e2021EF002339.

44.

Cao

. The impact of carbon market pilots on air pollution: evidence from China. Environ Sci Pollut Res 2021; 28: 62274–62291.

45.

Chimeli

Braden

. Total factor productivity and the environmental Kuznets curve. J Environ Econ Manage 2005; 49: 366–380.

46.

Hoang

Coelli

. Measurement of agricultural total factor productivity growth incorporating environmental factors: a nutrients balance approach. J Environ Econ Manage 2011; 62: 462–474.

47.

Zhang

. Decomposition of environmental total factor productivity growth using hyperbolic distance functions: a panel data analysis for China. Energy Econ 2015; 47: 87–97.

48.

Waguespack

Birnir

Schroeder

. Technological development and political stability: patenting in Latin America and the Caribbean. Res Policy 2005; 34: 1570–1590.

49.

Gholipour

. The effects of economic policy and political uncertainties on economic activities. Res Int Bus Finance 2019; 48: 210–218.

50.

Clò

Florio

Rentocchini

. Firm ownership, quality of government and innovation: evidence from patenting in the telecommunication industry. Res Policy 2020; 49: 103960.

51.

Dang

Motohashi

. China Economic review patent statistics : a good indicator for innovation in China ? patent subsidy program impacts on patent quality. China Econ Rev 2015; 35: 137–155.