When Do Authoritarian Rulers Tie Their Hands? Mobile Capital, Fiscal Dependency, and Political Climbers

When do authoritarian rulers eschew arbitrary rule and instead adhere to the rule of law? This paper seeks to address this puzzle in the Chinese context. Drawn theoretical insights from North and Weingast (1989), this paper proposes a simple theory to explain the variation of quality of courts at the sub-national level in China. I argue that due to specific incentives facing local Chinese Communist Party officials, local officials are more likely to adhere to rule of law and strengthen local legal systems the more they are dependent upon mobile capital. The rationale is that if capital is mobile and if a locality’s main revenue source depends on local economy, that locality’s officials will enforce the rule of law to keep mobile assets holders from moving. Based on a data set compiled from survey data and government yearbooks, this paper then tests this theory empirically. An implication is that rule of law may not be the result of external imposition (Acemoglu et al. 2001), but may actually develop from the internal incentive structure