IVs … and Democracy and Development Lecture 2

IVs … and Democracy and Development

Lecture 2

• Mistake: should have read Luo et al. (2007) … instead of Li and Rozelle (that is for Monday …

• Monday’s assignment (Fixed Effects):– Shaban– Li and Rozelle– Make up: Luo et al. (2007)

Today• Angrist and Kreuger: IV analysis

– Notation– Three uses of IVs:

• Simultaneity• Measurement Error• Omitted Variable (Unobserved Heterogeneity)

– Returns to Human Capital– Other examples from the appendix

• Does democracy lead to development in China?– Luo et al. (2007)

Basic Notation

Y = a0 + a1*X + a2*Z + ewhere Y is the independent variable / outcome var X is the endogenous variable or variable of interest Z is vector of observable control vars. e is the error

[including factors that are unobserved that affect Y]

The problem: cov(x,e) ≠ 0 Estimates of a1 are biased

Basic Notation

Y = a0 + a1*X-hat + a2*Z + e [second stage equation]

X = b0 + + b2*Z + γ*IV + u [first stage equation …]

where control variables, Z, are the SAME in both equationsIV is a vector of instrumental variables

two characteristicsa.) IV has an effect on X (or γ ≠ 0)

b.) IV does not affect Y, except through it indirect effect on X

X-hat is the prediction from the first stage equation and in a multivariate framework ONLY contains 1 type of net information part of X that is affected by IV

Go to Angrist and Krueger

Scott Rozelle, Stanford UniversityLinxiu Zhang, Jikun Huang, Renfu Luo, Chengfang Liu, CCAP

Village Governance and Transforming Rural China’s Communities

Large Investments are Needed to Improve the Quality of Life in

Rural Areas

Yet some villages have better infrastructure (and have enjoyed a higher “quantity” of investment in recent years) … What role does local governance play (ceteris paribus)?

Interest in the literature

• Chattopadhyay and Duflo (2004) – Will election rules (e.g., reservation seats for women) affect investment

into type of investment that women want … – Randomly assigned reservations … natural field experiment using village

level data• Besley and Burgess (2001)

– Openness more concentrated effort on helping the poor (using state level data) … newspaper circulation …

– Worry about endogeneity of newspapers … IV: media ownership concentration

• Rosenzweig and Foster (2003)– Will democracy (election of local leaders through an popular vote-based

election) help the poor … by giving them a bigger voice? – Governance structure type of investment using village data– Worry about endogeneity: use log of village population + dummy

variables indicating the passage of legislation relevant to local governance

Our conceptual framework

• Following Rosenzweig and Foster, we believe that elections will affect the spending of China’s village leadership:

from expenditures that benefit the elite (qingke chifan; salaries)

to expenditures that benefit the villages (infrastructure)

Farmer Believing there has been Improvements in Infrastructure since 1998

(from PRA focus groups)（农户小组访谈）

020406080

100R

oa

ds

Irrig

ati

on

Drin

kin

g

Wa

ter

Sc

ho

ols

He

alt

h

Percent of farmers

Farmer Dis-satisfaction with Current Status of Infrastructure

(from PRA focus groups + Surveys)

020406080

100

Ro

ad

s

Irrig

ati

on

Drin

kin

g

Wa

ter

Sc

ho

ols

He

alt

h

Percent of farmers saying “not satisfied”

Also willing to spend resources

Question #1:If your village received

a grant of 50,000 yuan, what would you spend it on?

Answer: 85% said roads, irrigation or drinking water

Question #2:

If village leader asked you to contribute 20 yuan/capita to improve the infrastructure in your village, would you be willing to contribute?

Answer: 79% said “yes”

a. infrastructureb. environmental preservationc. welfare paymentsd. investing in the leadership office

facilities

Main hypotheses

#1: Village elections will induce greater spending on public goods

#2: Because villagers demand greater spending on public goods, leaders that deliver more public goods during their term will have a greater probability of being re-elected

Objectives of Presentation

• Understand the contours of investment in China’s villages and examine differences across villages

• What is the role of governance changes?– How far has local democracy progress?– Do villages with leaders that were elected

investment more projects / higher investment?

• Why?– Do village leaders that invest more in public

goods get rewarded by the villager electorate?

Plan for Talk

Getting the facts right! [collect data]

Measure differences across communities (quantity and quality)

A sketch of China’s shift towards democracy

Empirical analysis: Does having village elections greater levels of investment? Why? Can projects be designed ‘better’ investments? Does having village elections ‘better’ investment?

Getting Data Right [“2000 village study”]

• Collected the data ourselves (Sept. 2003 … revisit in 2005)

• 6 provinces, 1 from each region of China• From each province randomly selected:

– 6 counties / 6 townships / all villages– 6 x 6 x 6 = 216 townships– All villages in each town Collect information on:

Investments (6 years)

Village elections (6 years)

Other village characteristics

Sichuan

Gansu

Shaanxi

Hebei

Jiangsu

Jilin

”2000 village survey”

Distribution of sample counties in China, 2003 Rural China Investment Survey

Total number of villages: 2459

Broad coverage of surveys … [“it was like Typhoon hit our village”]

• Village leader• Party secretary• Village accountant• Small group leaders• 2000 Farm Households• Focus groups• Engineering project evaluations• School / clinic evaluations• “Guerrilla” key informant interviews

Blocks of Survey• Public goods investments / sources

• Engineering-based evaluations (key projects)

• Project design, villager satisfaction and investment choices

• Fiscal data (Tax-for-Fee reform)

• Village elections (Election procedures) … and more (other part of governance structure of village)

• Village Characteristics and Other

Creating the data set

Observation 1:

During 3 year election cycle, how many projects were implement

During 3 year election cycle … was leader elected? [yes or no]

Observation 2:

During 3 year election cycle, how many projects were implement


Also move to use total investment

6/7 years of data

N=7041

Creating the data set

Observation 1:

During 3 year election cycle, how many projects were implement/year


Observation 2:

During 1 year of term, how many projects were implement/year


6/7 years of data

Obs. 4Observation 3:

During last 2 year of term, how many projects were implement/year

During 3 year election cycle … was leader elected? [yes or no] IV does not change over

time … though it is constant across towns

• What are the trends of China’s public investments into its villages over time and across space?

Composition of investment projectspublic vs. development

13%

87%

Total number of projects in sample

9,138 projects (in 2459 sample villages)

Development Projects

Public goods investments

Most of projects in rural China now focus on the provision of public goods … different than the 1980s

Nearly 4 per village during the study period … or almost 1 per year

Scope of public goods investment projects Project

N Total investment (10k yuan)

Build road or bridge 1266 11.2

Build school 850 9.9

Build clinic 163 2.5

Drinking water 636 7.5

Irrigation system 625 6.6

Drainage system 194 6.3 Loudspeaker for village committee 379 6.0

Land improvement 52 11.0

Watershed management 151 29.8

Land Leveling 124 13.6

Beautify environment 157 2.4

Forest closure 140 3.4

Eco-forest 55 3.4

Grain for green 892 6.7

Build pasture 19 13.4

Recreation center 262 5.0

Other public project 10 24.4

N 5,975 10.8

Type of PUBLIC GOODS projects

Around 2/3rds of public goods investments into 5 types of projects

Clinic, 3Drinking water, 11

Irri., 14

Schools, 14

Roads, 21Other

public projects,

37

11

Funding sources of public goods investment projects in rural China

0

10

20

30

40

50

Funded fully fromabove

Jointly funded Funded fully byvillage

Percent of Number of Public Goods Projects

Percent of Total Investment Amount in Public Goods by Source

By villageFrom above

53%47%

0

200

400

600

800

1000

1200

Corvee Labor

Person days per project

Rising Overtime:Public Goods Investment Projects

0

0.2

0.4

0.6

0.8

1

1.2

1998-2002 2003-2004

Projects per year

Rising … But Still Not Enough!Total Spending: China versus Japan/Korea

0

100

200

300

400

500

Japan--50s

Korea-80s

China-2000

China-2004

Total Inv./Capita (US dollars, PPP terms

Distribution of public goods projects, number of projects and amount of

investment

0.1

.2.3

.4.5

.6.7

.8D

ensi

ty

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14total number of PUBLIC projects at village level between 1998-2003

0.1

.2.3

.4.5

Den

sity

0 5 10 15 20 25 30 35 40 45 50 55 60investment volume

Kernel density estimate

Normal density

Units: 10K yuanUnits: number of projects

Mean size of investment project: about 50,000 yuan

Mean number of project: 3 to 4 for sample period

While some villages have lots of projects … others do not!

Determinants of Investment Quantity

Determinants of Quantity (number of projects / amount of investment—yuan)

– Many factors• Village locations• Structure of village economy• Ethnic Make up• Policies (e.g., Tax Reform)

• Village governance reformFocus of

the paper

Village Elections in China

• They are now into 6th to 8th round … on average, there has been 5 elections held in the typical village … [there have been more than 5 million “elections” in rural China since mid-1980s]

• BUT, a lot of heterogeneity

• Despite the progress in holding elections, almost no one is going to claim that they are perfect

• Some leaders still are appointed … procedures are poor …



• Election of leaders is rising over time

• Some leaders still are appointed … procedures are poor …

Villages that “Directly Elect” Village Leaders … is growing over time

0

20

40

60

80

100

1995 to 1997 2002 to 2004

6983

Percent




• Some leaders still are appointed … and it varies across space …

What is going on?China’s rural election

Appointed village leader Elected village leader

Frequency Percent Frequency Percent

Jiangsu 379 28.03 973 71.97

Gansu 213 22.88 718 77.12

Sichuan 114 10.63 958 89.37

Shaanxi 211 19.36 879 80.64

Jilin 79 7.36 995 92.64

Hebei 492 32.33 1,030 67.67

Total 1,488 21.13 5,553 78.87

Though the election have been implemented for many years, there are still villages that do not elect their village leader directly




• Some leaders still are appointed … and it varies across space …

• No one claims elections are perfect … but, signs that they are getting better

Quite decentralized (how they run elections?) But there are factors that

affect the nature of the elections

• Election committee governance – (in >80% of village, who runs the elections?: the

village party secretary … that is the leader of the village Communist Party cell … though there are difference in participation of township/county officials)

• Nominations (not transparent … often subject to “approval” of town officials

• Many times villages just won’t have elections … they will only nominate one person … the township will appoint a leader … the towns only let one person run for village leader

So is there a relationship between elections and public goods investment?

-- Descriptive

-- Multivariate

Relationship between election of village leader and total investment

0

0.2

0.4

0.6

0.8

1

Elected Appoint

# o

f p

roje

cts/

year

0

20

40

60

80

100

Elected Appoint

Th

ou

san

d Y

uan

Investment Projects and Elections

Village leader directly elected?("Yes"or"No")

0

5

10

15

20

25

30

35

40

45

Road Irrigation School

Village leader directly elected ? ("Yes" or "No")

0

2

4

6

8

10

12


Yes

Village leader directly elected?("Yes"or"No")

0

5

10

15

20

25

30

35

40

45


Yes

Yes

Yes

No

No

No

Yes

No

Yes

Yes

NoNo

Investment (Thousand Yuan) Village funded investment (Thousand Yuan)

E A E AE A E A E A

E A

Road RoadDrinking Water

Drinking WaterIrri. Irri.

Total investment Investment from village itself

Determinants of Investment Quantity

Determinants of Quantity (number of projects / amount of investment—yuan)

– From paper (by type; by source … using OLS + IV)

– From new work (total investment; by source … using Fixed Effect + GMM)

Road project Probit (Tobit) analysisInvestment= a0 + a1*D-election + a2*other factors+Provincial fixed effects

All funding sources Village funded only Above funded only Have or no road

project (Probit)

Road project investment level

(tobit)

Have or no road project (Probit)

Rroad project investment level

(tobit)

Have or no road project (Probit)

Road project investment level

(tobit) Village leader elected 0. 14 5. 14 0. 15 5. 76 0. 16 12. 40 directly(yes=1,no=0) (3. 38)*** (3. 20)*** (2. 74)*** (3. 13)*** (2. 20)** (2. 01)** Dummy of rural Tax for Fee 0. 12 4. 76 -0. 02 0. 18 0. 14 12. 40 reform(before=0,after=1) (3. 19)*** (3. 10)*** (0. 45) (0. 10) (2. 19)** (2. 30)** Net per capita income -1E-06 -0. 004 2E-04 -0. 001 -1E-04 -0. 001 in 1997(yuan) (0. 02) (1. 96)** (2. 54)** (0. 64) (0. 71) (0. 05) Net per capita income -4E-09 1E-06 -1E-08 2E-06 -5E-08 -5E-06 square in 1997 (0. 31) (2. 96)*** (0. 74) (4. 08)*** (1. 28) (1. 56) Total population in 1997 3E-05 0. 0021 -3E-05 0. 0008 8E-07 -0. 0032 (person) (1. 34) (2. 80)*** (1. 14) (0. 97) (0. 02) (1. 03) Percentage of minority 0. 002 0. 07 0. 001 0. 03 0. 004 0. 27 population in 1997(%) (2. 45)** (2. 16)** (1. 34) (0. 73) (3. 39)*** (2. 69)*** Per capita land in 1997(mu) -0. 017 -0. 64 -0. 033 -1. 03 -0. 010 -1. 10 (1. 66)* (1. 55) (1. 98)** (1. 71)* (0. 58) (0. 77) Percentage of effectively 0. 001 0. 088 0. 001 0. 092 -0. 001 0. 047 irrigated land in 1997(%) (1. 12) (3. 57)*** (1. 53) (3. 32)*** (0. 54) (0. 53) Hilly land over 25 degree in total land in the village in

0. 002 0. 072 0. 001 0. 027 0. 004 0. 211 1997(%) (2. 87)*** (2. 35)** (0. 73) (0. 75) (3. 44)*** (2. 04)** The distance of the nearest -0. 002 -0. 11 -0. 006 -0. 28 -0. 002 -0. 07 road to the village in 1997(Km) (1. 12) (1. 64) (2. 51)** (3. 02)*** (0. 53) (0. 27) The farthest distance between two small groups in this village

-0. 007 -0. 48 -0. 002 -0. 07 -0. 022 -1. 67 in 1997(Km) (0. 99) (1. 79)* (0. 29) (0. 24) (1. 57) (1. 45) The distance between village 0. 0021 0. 15 -0. 0015 -0. 05 -0. 0043 -0. 31 and township seat in 1997(Km) (0. 56) (0. 99) (0. 31) (0. 31) (0. 63) (0. 54) Number of fellow villagers working in township or

0. 006 0. 37 0. 002 0. 07 0. 007 0. 63 county governments(person) (2. 92)*** (4. 41)*** (0. 54) (0. 74) (1. 90)* (2. 00)** The illiterate rate of village -0. 13 -6. 64 -0. 72 -31. 70 0. 44 31. 80 labor force in 1997(%) (1. 00) (1. 28) (3. 92)*** (4. 54)*** (2. 33)** (2. 01)** major road passing by village -0. 05 -1. 01 0. 01 0. 79 -0. 11 -9. 05 (yes=1, no=0) (1. 18) (0. 66) (0. 16) (0. 47) (1. 47) (1. 54) Province Dummy Yes Yes Yes Yes Yes Yes Constant -6E-01 -35. 6 -2E+00 -58. 3 -1E+00 -126 (5. 75)*** (8. 72)*** (11. 6)*** (11. 90)*** (7. 23)*** (7. 37)*** Observations 7041 7041 7041 7041 7041 7041 Pseudo R2 0.03 0.02 0.04 0.03 0.05 0.02

Absolute value of t statistics in parentheses, * significant at 10%; ** significant at 5%; *** significant at 1%

Data source: Authors’ survey.

Road project Probit (Tobit) analysis(Focusing on the D-election coefficient)

All fund source Village funded only Above funded only Have or no

project (Probit)

Investment level

(tobit)

Have or no project (Probit)

Investment level

(tobit)


Investment level

(tobit) Village leader elected Directly

0.14 5.14 0.15 5.76 0.16 12.40

(yes=1,no=0) (3.38)*** (3.20)*** (2.74)*** (3.13)*** (2.20)** (2.01)**

Irrigation project Probit (Tobit) analysisInvestment= a0 + a1*D-election + a2*other factors+Provincial fixed effects


irrigation project (Probit)

Irrigation project investment level

(tobit)

Have or no irrigation project

(Probit)


(tobit)

Have or no irrigation project

(Probit)


(tobit) Village leader elected 0.14 4.7 0.15 2.42 0.08 1.95 directly(yes=1,no=0) (3.01)*** (3.23)*** (2.49)** (2.48)** (1.09) (0.63) Dummy of rural Tax for Fee -0.24 -7.7 -0.18 -3.12 -0.15 -7.19 reform(before=0,after=1) (5.54)*** (5.54)*** (3.09)*** (3.39)*** (2.20)** (2.37)** Net per capita income -0.0001 -0.003 0.00010 -0.0004 0.0001 0.005 in 1997(yuan) (1.02) (1.61) (1.38) (0.34) (0.66) (0.92) Net per capita income 1E-09 0.0000004 -3E-09 5E-07 -5E-08 -2E-06 square in 1997 (0.09) (1.20) (0.21) (2.61)*** (1.57) (1.42) Total population in 1997 -6E-05 0.000 -0.0001 -0.001 -2E-05 -0.0004 (person) (2.67)*** (0.45) (4.43)*** (2.75)*** (0.67) (0.27) Percentage of minority 0.000 0.08 -0.002 -0.05 0.003 0.16 population in 1997(%) (0.44) (2.31)** (0.89) (1.52) (2.24)** (2.45)** Per capita land in 1997(mu) -0.02 -0.76 -0.036 -0.26 -0.014 -0.60 (1.24) (1.55) (1.37) (0.67) (0.64) (0.64) Percentage of effectively 0.0036 0.084 0.005 0.08 -0.002 -0.10 irrigated land in 1997(%) (5.19)*** (3.72)*** (5.24)*** (4.96)*** (2.13)** (2.04)** Hilly land over 25 degree in total land in the village in

-0.003 -0.09 -0.0034 -0.06 -0.0020 -0.07 1997(%) (2.99)*** (3.00)*** (2.31)** (2.51)** (1.41) (1.04) The distance of the nearest -0.0056 -0.20 -0.010 -0.14 -0.005 -0.15 road to the village in 1997(Km) (2.30)** (2.54)** (2.04)** (1.90)* (1.34) (0.99) The farthest distance between two small groups in this village

-0.022 -1.03 -0.015 -0.30 -0.02 -1.04 in 1997(Km) (2.26)** (3.23)*** (0.99) (1.24) (1.10) (1.59) The distance between village -0.005 -0.17 -0.003 -0.10 -0.009 -0.08 and township seat in 1997(Km) (1.06) (1.09) (0.44) (0.85) (1.09) (0.24) Number of fellow villagers working in township or

0.004 0.11 -0.006 -0.13 0.003 0.16 county governments(person) (1.62) (1.36) (1.41) (1.87)* (0.72) (0.96) The illiterate rate of village -0.46 -1E+01 -0.32 -3.85 -0.26 -8.29 labor force in 1997(%) (2.85)*** (2.26)** (1.32) (1.01) (1.14) (0.81) Province Dummy Yes Yes Yes Yes Yes Yes Constant -0.75 -28.90 -1.53 -25.48 -1.32 -66.0 (6.67)*** (7.89)*** (9.87)*** (9.67)*** (7.08)*** (7.41)*** Observations 7041 7041 7041 7041 7041 7041 Pseudo R2 0.06 0.02 0.13 0.08 0.03 0.02 Absolute value of t statistics in parentheses, * significant at 10%; ** significant at 5%; *** significant at 1% Data source: Authors’ survey.

Irrigation project Probit (Tobit) analysis(Focus on the D-election)


project (Probit)

Investment level

(tobit)


Investment level

(tobit)


Investment level

(tobit)

Village leader elected 0.14 4.7 0.15 2.42 0.08 1.95 Directly (yes=1,no=0)

(3.01)*** (3.23)*** (2.49)** (2.48)** (1.09) (0.63)

Multivariate Analysis: Elections and Investment Quality in China’s Villages

road project (total) Village funded road only Above funded road only

(1) (2) (3) (4) (5) (6)

Probit Tobit Probit Tobit Probit Tobit

Village leader elected directly (yes=1, no=0)

0.08 3.11 0.08 3.18 0.16 12.3

(1.90)* (1.91)* (1.42) (1.72)* (2.10)** (1.95)*

irrigation project (total) Village funded irrigation only Above funded irrigation only


0.13 4.09 0.13 1.74 0.05 1.38

(3.06)*** (3.11)*** (2.19)** (1.98)** (0.81) (0.45)

school project (total) Village funded school only Above funded school only


0.14 18.2 0.18 4.13 0.17 15.2

(2.42)** (2.94)*** (2.18)** (2.42)** (1.79)* (2.32)**

Dependant variable Number of public goods projects per term (All public goods projects)

(1) ols (2) Tobit (3) Fixed effect

The way village leader acceded to office 0.178 0.293 0.314

(0=appointed,1=elected directly) (4.60)*** (4.90)*** (4.85)***

Roads

irrigation

drinking water

All projects

Election variable

Election variable

Election variable

Dependent

variables

+ ++ ++

++ +

+

++++ +

+

+

+++

Problem with OLS regression

• Unobserved heterogeneity

• Need IV (use both 2SLS and bivariate probit):

Investment = a0 + a1*election + a2*other factors + eElection = b0 + b1*IV + b2*other factors + u

Where, IV is specified to be two variables (in paper):a.) measure of rule: does slate of village leader candidates have to be “approved by the township” as part of the election process

b.) number of meetings held for a village’s election that was attended by officials from county and township

[pass exclusion restriction/over-ID tests … there is no obvious evidence in descriptive statistics that suggest rules and investments are related …

RHS Controls and IVs: Correlations?The candidate should be

approved by upper government Meetings hold by county and township for term turn over

Yes No More than

fifth Less than fifth

Per capita land in 1997 1.9 2.3 1.9 2.1

Net per capita income in 1997 1621 1352 1751 1412

The illiterate rate of village labor force in 1997 0.1 0.1 0.08 0.11

Number of fellow villagers working in township or county governments 5.6 4.9 6 5

% of hilly land over 25 degree in total land in the village in 1997 21 25 21 24

The distance of the nearest road to the village seat in 1997 6.5 5.6 5.2 6.7

The distance between village and township seat in 1997 5.3 5.2 5.0 5.4

The farthest distance between two small groups in this village in 1997 2.7 2.5 3.2 2.4

Over-identification test and hausman test

Dependant variable Have or no road project Have or no Village funded road project

Chi-sq(1) 1.98 0.295 Hansen-Sargan

over identification

Test

P-value 0.1598 0.587

Chi-sq(1) 0.0526 1.503 Hausman Test

P value 0.8226 0.2202

Dependant variable Have or no irrigation project Have or no Village funded irrigation

project

Chi-sq(1) 2.63 0.237 Hansen-Sargan

over identification

Test

P-value 0.105 0.626

Chi-sq(1) 1.029 0.014 Hausman Test

P value 0.311 0.906

Are our IV measure measuring “dysfunction”?

• Correlation of villages within a township (high) … if they have to approve the nominations of slates of candidates in one village in the township, the probability is high that the township has to approve the slate of candidates of the other village.

• Same is true with number of meetings held with each village (r=0.89)

Accounting for endogeneity of electionsRoad project IV estimation

(IVs: rules on candidate approval during nomination; number of meetings for organizing village election attended by upper-level government officials)

All Funding source project

Village funding project Other controls

0.86[0.15] 1.30[0.07]

Direct election of village leader (yes=1,no=0)

(1.79)* (5.07) ***

Geography, Society and

economic factors

F test value of the instrument variable

17.65 16.45

Marginal effect in bracket; Absolute value of t statistics in parentheses

* significant at 10%; ** significant at 5%; *** significant at 1%

All Funding source project

Village funding project Other controls

1.22[0.1] 0.35[0.02]

Direct election of village leader (yes=1,no=0)

(5.05)*** (0.47)

Geography, Society and

economic factors

F test value of the instrument variable

33.37 30.68

Marginal effect in bracket; Absolute value of t statistics in parentheses * significant at 10%; ** significant at 5%; *** significant at 1%

Accounting for endogeneity of electionsIrrigation project IV estimation

(IVs: rules on candidate approval during nomination; number of meetings for organizing village election attended by upper-level government officials)

The multivariable analyses (OLS) Total investment = a0 + a1*D-election + a2*other factors + e

Yearly public goods projects in latest term Yearly public goods investment in latest term (Log)

All sources Village

funded Co-funded

Above

funded All sources

Village

funded Co-funded

Above

funded

The way village leader acceded to office 0.09 0.06 0.01 0.02 0.77 0.39 0.13 0.25

(0=appointed, 1=elected directly) (4.24)*** (5.20)*** (0.78) (1.66)* (4.98)*** (4.20)*** (1.10) (2.56)**

Tax-for-Fee reform -0.34 -0.06 -0.17 -0.11 -3.50 -0.77 -1.70 -1.40

(after=1,before=0) (11.96)*** (3.96)*** (8.71)*** (7.51)*** (16.64)*** (6.17)*** (10.62)*** (10.53)***

Target factors

net per capita income in 1997(1000 yuan) -9.19 51.31 -38.59 -21.91 -29.05 461.89 -290.40 -213.38

(0.75) (7.67)*** (4.66)*** (3.45)*** (0.32) (8.65)*** (4.26)*** (3.77)***

Percentage of minority -0.0002 -0.00001 -0.0003 0.00004 0.001 -0.001 0.002 0.0004

population in 1997 (0.66) (0.05) (1.10) (0.22) (0.30) (0.78) (0.74) (0.25)

Hilly land over 25 degree in total 0.0006 0.0001 0.0002 0.0004 0.01 0.0001 0.0005 0.0060

land area in the village in 1997 (1.67)* (0.27) (0.82) (1.87)* (2.43)** (0.03) (0.22) (3.50)***

Total population in 1997(1000 ren) 37.3 5.3 21.5 10.5 278.5 65.3 258.0 92.1

(3.51)*** (0.91) (2.99)*** (1.90)* (3.58)*** (1.41) (4.36)*** (1.87)*

The illiterate rate of village -0.03 -0.05 -0.01 0.02 -0.4 -0.5 -0.01 0.4

labor force in 1997 (0.58) (1.47) (0.20) (0.69) (1.02) (1.92)* (0.04) (1.64)

The distance between village committee -0.001 0.001 -0.0004 -0.001 -0.008 0.004 0.010 -0.010

and township seat in 1997 (0.67) (0.70) (0.37) (1.55) (0.61) (0.52) (1.01) (1.21)

The distance of the nearest road -0.002 -0.002 0.0001 -0.0001 -0.01 -0.01 -0.003 -0.005

to the village seat in 1997 (2.05)** (3.70)*** (0.15) (0.25) (2.06)** (3.76)*** (0.64) (1.37)

Demand factors

The number of village/group 0.02 0.02 0.0005 -0.0002 0.11 0.16 0.03 -0.003

enterprise in 1997 (2.94)*** (5.32)*** (0.10) (0.05) (2.04)** (4.74)*** (0.81) (0.09)

Per capita land in 1997 (mu) -0.010 -0.006 -0.003 -0.001 -0.02 -0.03 -0.03 0.03

(2.06)** (2.19)** (0.97) (0.38) (0.63) (1.70)* (1.02) (1.16)

Percentage of effectively -0.001 -0.0001 -0.0002 -0.001 -0.003 0.001 0.001 -0.006

irrigated land in 1997 (3.96)*** (0.44) (0.72) (6.21)*** (1.33) (0.94) (0.32) (4.13)***

The farthest distance between two small 0.005 -0.001 0.002 0.003 0.02 0.002 0.01 0.02

groups within this village in 1997 (1.53) (0.52) (1.15) (1.99)** (0.89) (0.12) (0.49) (1.59)

Other Factors

Number of fellow villagers working in 0.005 0.000 0.004 0.001 0.03 0.001 0.028 0.008

township or county governments (4.19)*** (0.40) (4.88)*** (1.29) (3.53)*** (0.27) (4.17)*** (1.35)

Age of village leader 0.001 0.002 -0.001 0.001 0.02 0.02 0.003 0.01

(1.22) (2.88)*** (1.15) (0.82) (1.92)* (3.26)*** (0.44) (1.70)*

Education of village leader 0.02 0.02 -0.01 0.01 0.04 0.21 -0.10 0.07

(1.52) (3.56)*** (1.63) (1.31) (0.43) (3.83)*** (1.45) (1.11)

Prior occupation of village leader -0.04 -0.03 -0.02 0.01 -0.33 -0.20 -0.23 0.12

(pure farmer=1,others=0) (2.12)** (2.54)** (1.81)* (0.95) (2.48)** (2.50)** (2.22)** (1.47)

The time of the village leader 0.07 0.01 0.03 0.03 0.44 0.06 0.19 0.26

acceded to office (15.82)*** (3.45)*** (10.11)*** (13.67)*** (14.50)*** (3.25)*** (8.32)*** (13.60)***

Results from the multivariate analyses(Focusing on the coefficient of the direct election dummy

variable)

Yearly public goods projects in latest term

Yearly public goods investment in latest term (Log)

All sources

Village funded

Co-funded Above funded

All sources

Village funded


0.09 0.06 0.01 0.02 0.77 0.39 0.13 0.25 Ols

(4.24)*** (5.20)*** (0.78) (1.66)* (4.98)*** (4.20)*** (1.10) (2.56)**

0.16 0.04 0.08 0.04 0.95 0.26 0.63 0.36 Fixed

effect (4.67)*** (2.55)** (3.38)*** (2.40)** (3.53)*** (1.79)* (3.26)*** (2.25)**

Fixed Effects Analysis Investment = a0 + a1*D-election + a2*other factors + Village effects

Yearly public goods projects in latest term Yearly public goods investment in latest term (Log)

All sources Village funded


All sources Village funded


The way village leader acceded to office

0.16 0.04 0.08 0.04 0.95 0.26 0.63 0.36

(0=appointed,1=elected directly)

(4.67)*** (2.55)** (3.38)*** (2.40)** (3.53)*** (1.79)* (3.26)*** (2.25)**

Tax-for-Fee reform -0.30 -0.05 -0.14 -0.11 -3.41 -0.70 -1.60 -1.39

(after=1,before=0) (9.99)*** (3.36)*** (7.12)*** (7.31)*** (14.75)*** (5.65)*** (9.63)*** (10.20)***

Age of village leader -0.001 0.001 -0.003 0.0005 0.00 0.02 -0.01 0.01

(0.44) (1.59) (2.23)** (0.51) (0.33) (2.54)** (1.22) (0.82)

Education of village leader

0.005 -0.005 -0.005 0.015 -0.07 -0.05 -0.10 0.10

(0.20) (0.46) (0.36) (1.34) (0.41) (0.56) (0.80) (0.99)

Prior occupation of village leader

-0.027 -0.0005 -0.033 0.006 -0.36 -0.11 -0.22 -0.01

(pure farmer=1,others=0)

(0.77) (0.03) (1.40) (0.34) (1.32) (0.78) (1.11) (0.04)

The time of the village leader

0.06 0.01 0.03 0.03 0.46 0.07 0.19 0.27

acceded to office (15.33)*** (4.29)*** (9.42)*** (14.08)*** (14.40)*** (4.22)*** (8.20)*** (14.24)***

Constant -129.1 -17.6 -52.1 -59.3 -925.5 -148.0 -379.2 -542.9

(15.29)*** (4.27)*** (9.36)*** (14.08)*** (14.43)*** (4.33)*** (8.23)*** (14.36)***

Observations 7041 7041 7041 7041 7041 7041 7041 7041

Number of village id 2448 2448 2448 2448 2448 2448 2448 2448

R-squared 0.06 0.01 0.03 0.05 0.06 0.01 0.03 0.05

Results from the multivariate analyses(Focusing on the coefficient of the direct election dummy

variable)

Yearly public goods projects in latest term

Yearly public goods investment in latest term (Log)

All sources

Village funded


All sources

Village funded


0.09 0.06 0.01 0.02 0.77 0.39 0.13 0.25 Ols

(4.24)*** (5.20)*** (0.78) (1.66)* (4.98)*** (4.20)*** (1.10) (2.56)**

0.16 0.04 0.08 0.04 0.95 0.26 0.63 0.36 Fixed

effect (4.67)*** (2.55)** (3.38)*** (2.40)** (3.53)*** (1.79)* (3.26)*** (2.25)**

IV-GMM Analysis Investment = a0 + a1*D-election + a2*other factors

(IV=lag value of D-election)

Yearly public goods projects in

latest term Yearly public goods investment in

latest term (Log)

All

sources Village funded

Co-funded

Above funded

All sources

Village funded

Co-funded

Above funded

The way village leader acceded to office 0.11 0.02 0.06 0.03 0.62 0.15 0.64 0.26

(0=appointed,1=elected directly) (1.80)* (1.74)* (1.59) (0.86) (1.81)* (1.59)* (1.91)* (0.96)

Observations 4587 4587 4587 4587 4587 4587 4587 4587

N=4587 not 7041

What is the mechanism?

Why do elected leaders invest more?

May be a “Reverse Relationship”between investments and re-election

0

0.2

0.4

0.6

0.8

1

Re-elected NotReelected

# o

f p

roje

cts/

year

What happens after an elected term?• Reformulate the sample:

– Throw away all leaders that were appointed

– 4 categories– Keep leaders that were

elected (n=5000 or so)• Don’t use sample of

village leaders that “turned into” party secretaries

• Don’t use elected village leaders that decided not to run / resigned early

– Left with two groups:• Incumbents that ran and

won• Incumbents that ran and

lost All leaders that were elected

Incumbents that won

Incumbents that lost

Made into party secretaries

Did not rerun or resigned early

What happens after an elected term?

• Reformulate the sample:

Left with two groups:• Incumbents that ran

and won (n=3100)• Incumbents that ran

and lost (n=800)

N = about 3900

All leaders that were elected

Incumbents that won

Incumbents that lost

Did not rerun or resigned early

Reverse Regression (fixed effects)Reelected = a0 + a1*number of projects + a2*other factors +

V + eTable 11 The yearly public projects number (investment level) in latest tem and the re-election

(re-appointment) of village leader

Re-election (1=yes,0=no) Re-appointment (1=yes,0=no)

Public projects number 0.05 0.06 -0.02 -0.07

(2.54)** (2.30)** (0.54) (1.36)

Above funded public projects number 0.03 0.14

(0.47) (0.88)

Village funded public projects number 0.15 -0.42

(2.59)*** (3.49)***

Co-funded public projects number 0.07 -0.06

(1.82)* (0.72)

Public investment level 0.003 0.003

(1.42) (0.68)

Average investment level per project -0.002 0.009

(0.66) (1.44)

Average investment level of above 0.004 -0.001

funded public projects (0.92) (0.10)

Average investment level of village -0.01 0.02

funded public projects (1.94)* (2.20)**

Average investment level of co-funded -0.005 0.01

public projects (1.47) (1.51)

Age of incumbent -1.43 -1.43 -1.43 -1.42 -0.75 -0.74 -0.75 -0.72

(14.67)*** (14.70)*** (14.68)*** (14.55)*** (4.35)*** (4.29)*** (4.37)*** (4.23)***

Education of incumbent 0.03 0.04 0.02 0.02 0.45 0.46 0.44 0.45

(0.18) (0.22) (0.16) (0.14) (1.34) (1.36) (1.31) (1.34)

Year Dummy yes yes yes yes yes yes yes yes

Constant 5.57 5.61 5.57 5.49 3.03 2.98 3.10 3.13

(10.63)*** (10.69)*** (10.61)*** (10.44)*** (4.15)*** (4.11)*** (4.24)*** (4.33)***

Observations 3718 3718 3718 3718 875 875 875 875

R-squared 0.19 0.18 0.19 0.19 0.13 0.13 0.14 0.18

The evidence of election incentive 2(Focus on public investment with village fixed effect)

Re-election (1=yes,0=no)

Public projects number 0.05 0.06

(2.54)** (2.30)**

Above funded public projects number 0.03

(0.47)

Village funded public projects number 0.15

(2.59)***

Co-funded public projects number 0.07

(1.82)*

Public investment level 0.003

(1.42)

Average investment level per project -0.002

(0.66)

Average investment level of above 0.004

funded public projects (0.92)

Average investment level of village -0.01

funded public projects (1.94)*

Average investment level of co-funded -0.005

public projects (1.47)

More public goods project, more chance of Re-election

Is there the same effect when village leader were appointment?

Re-appointment (1=yes,0=no)

Public projects number -0.02 -0.07

(0.54) (1.36)

Above funded public projects number 0.14

(0.88)

Village funded public projects number -0.42

(3.49)***

Co-funded public projects number -0.06

(0.72)

Public investment level 0.003

(0.68)

Average investment level per project 0.009

(1.44)

Average investment level of above -0.001

funded public projects (0.10)

Average investment level of village 0.02

funded public projects (2.20)**

Average investment level of co-funded 0.01

public projects (1.51)

Nothing is significant when leader is reappointed … therefore his performance in the village does not matter

Summary

• Elections in a number of different regressions … using types of investments … sources of investment … and total investment (# of projects / investment levels) … PLUS different estimating strategies (IV / FE / GMM) find positive impact

• Mechanism: Pork barrel politics, with Chinese characteristics

Support for the literature• Rosenzweig and Foster (2003)

– Will democracy (election of local leaders through an popular vote-based election) help the poor … by giving them a bigger voice?

– Governance structure type of investment using village data– Worry about endogeneity: use log of village population + dummy

variables indicating the passage of legislation relevant to local governance

• Chattopadhyay and Duflo (2004) – Will election rules (e.g., reservation seats for women) affect investment

into type of investment that women want … – Randomly assigned reservations … natural field experiment using village

level data• Besley and Burgess (2001)

– Openness more concentrated effort on helping the poor (using state level data) … newspaper circulation …

– Worry about endogeneity of newspapers … IV: media ownership concentration

n.a.

Plus LOTS more to do

• Using new IV (county level protocols)• Using “quality of election” and protocols to

see whether or not the type of election matter …

• Looking at other aspects of governance (how about the Communist Party Cell?)

• Effect of elections on “quality of investments”

Thank you

IVs … and Democracy and Development Lecture 2

Documents

Transcript of IVs … and Democracy and Development Lecture 2