Diffusion of Marketization Innovation with Administrative Centralization in a Multilevel System: Evidence from China

How does the vertical power structure of government shape innovation adoption? This study explores the relationship between administrative centralization and the adoption of local marketization innovation in China. In the central–provincial–city hierarchical structure of China, political interactions across different levels of governments significantly influence the marketization reform process. We argue that, although the intervention policies from the central or provincial governments independently stimulate the city adoption of marketization innovation, their combined impact on city governments tend to be competitive rather than complementary. We empirically examine the diffusion of probusiness administrative licensing centers across Chinese cities between 1997 and 2012. Statistical findings supported by robustness checks confirm our theoretical hypotheses.