City Institution and Firm Productivity: The Impact of the Administrative Ranks of Chinese Cities

ABSTRACT

Chinese cities are distinguished by their administrative ranks, which play an essential role in capital accumulation/formation, infrastructure investment, and resource allocation. The unique features of governmental structure are of great importance to institutional studies. Drawing on the distinctive features of Chinese cities' political structures, this paper examines the impact of city administrative rank on firm productivity. Using firm‐level panel data from China's manufacturing sector, we estimate city‐level Total Factor Productivity (TFP) and examine its association with administrative ranking variables. Our results show that cities with higher administrative ranks have higher TFP. We conduct robustness checks by applying different estimators for TFP, controlling labor quality and firm innovation, and running our analyses on subsamples such as by industrial sector, ownership, and firm size. Finally, we conclude with policy implications.