The economic consequences of political hierarchy: evidence from regime changes in China, 1000–2000 C.E.

We study how political hierarchy shapes regional development in China, using variations driven by regime changes during the 1000–2000 C.E. period. We find that changes in the status of the provincial capital led to the rise and decline of different prefectures as measured by population and urbanization. Two other novel findings stand out: (1) the economic advantages of the provincial capitals did not persist if they lost their political status, and (2) political hierarchy shaped economic development not only through public employment but also through the development of important infrastructure, such as transportation networks. Our findings highlight the importance of politics in determining the locations of economic activities.