Bureaucratic transfers and industrial structure changes in China: The role of superstar firms

This paper examines how local industrial structure changes after bureaucratic transfers across Chinese cities. Utilizing firm-level data within the manufacturing sector, we show a positive and significant effect of transferred local leaders on the industrial similarity between cities connected by them, and this response arises 3 years after the transfers. However, when transferring between cities with notable disparities in resource endowments, local leaders induce diminished industrial similarity among connected cities. Our mechanism analyses then find that, after transferred leaders arrive, new superstar firms are more likely to be attracted to their current jurisdictions and new industries in which their previous jurisdictions have already superstar firms tend to be developed in the current jurisdictions, thus making the industrial structure between the connected cities more similar. Furthermore, we find that transferred local leaders contribute to the synchronization of regional economic growth through facilitating the diffusion of productive capabilities across cities.