Noam Yuchtman (Alesina Seminar)

Speaker & Title

Noam Yuchtman (London School of Economics), "Legal Therapy: Coercion, the Courts, and Structural Transformation in China"

Abstract

Limitations to property and labor rights are widely seen as facilitating China’s growth miracle – including by the Chinese government. Yet, a “coercive” approach to development – in which local governments used the courts to suppress labor rights and apply eminent domain – can become increasingly costly as a country develops if popular opposition increases and if distorted factor prices become increasingly inefficient. Reflecting these concerns, the Chinese central government implemented a legal reform that aimed to enhance local judicial independence, restricting the legal coercive power of local governments. Exploiting the staggered rollout of the reform, we show that citizens’ win rates in land and labor disputes against local governments and large firms rose substantially, while protests in these domains declined. Factor markets reflected these institutional changes: land compensation increased, land expropriation fell, and firms expanded worker benefits while reducing local labor demand. The rise in land and labor costs induced a reallocation away from land- and labor-intensive sectors toward more technology-intensive activities. Quantifying the associated changes in factor market distortions, we find improvements in allocative efficiency and aggregate productivity, particularly in more developed regions. These findings demonstrate how limiting state coercive power can reshape factor markets and induce structural transformation, even within an authoritarian system.