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Frontiers of Economics in China

Front Econ Chin    2012, Vol. 7 Issue (4) : 544-559
What Role Does the Political Environment Play in Economic Development? —A Case Study of Fujian Province
Jingwen Yu1(), Chunchao Wang2()
1. School of Economics, Fudan University, Shanghai 200433, China; 2. Department of Economics, Jinan University, Guangzhou 510632, China
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Uncertainty induced by the political environment affects investment risk, and thus affects investment decisions, which have a close relationship with economic development. This paper investigates the economic cost of political instability using the case study of the tense relationship across-Strait in China. We use a synthetic control method to better model the counterfactual analysis of this case study. The intense situation of the relations across-Strait has great influence on the economic development of Fujian province. Fujian province is the closest province in proximity to Taiwan and also possesses the greatest preferential policies for Taiwanese direct investment. The empirical results of this study reveal that during 2001-2008 Fujian province’s average annual loss in GDP per capita was 682.54 yuan. In other words, GDP per capita in Fujian has declined about 12.1 percent annually during this period compared with GDP per capita as calculated by the synthetic control method.

Keywords political environment      economic development      synthetic control method      cross-straits relations     
Corresponding Author(s): Jingwen Yu,; Chunchao Wang,   
Issue Date: 05 December 2012
 Cite this article:   
Jingwen Yu,Chunchao Wang. What Role Does the Political Environment Play in Economic Development? —A Case Study of Fujian Province[J]. Front Econ Chin, 2012, 7(4): 544-559.
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