When your neighbour is the village cadre: allocation of public resources in the social network

ABSTRACT

As a key node in the social network, political elites play an important role in the allocation of public resources in developing countries, and they may bring benefits to their neighbours. China’s large-scale poverty alleviation efforts, as well as the nature of China as an acquaintance society, provides us with an opportunity to examine this issue. By using a novel panel of data from a village in China, our results show that households connected to village cadres are more likely to become beneficiaries of poverty alleviation projects than those not connected – the closer the social relationship with village cadres, the greater the benefits. Both favouritism and information transmission are proven to be mechanisms of the connection effect. As such, closely connected networks within communities are conducive to improving the targeting efficiency of public welfare projects, and external supervision is essential for eliminating the favouritism of political elites.

KEYWORDS:

• Social network
• political connection
• public resources allocation
• China

JEL CLASSIFICATION:

• D61
• I38
• Z13

Disclosure statement

No potential conflict of interest was reported by the author(s).

Ethical standards

All data collection and analysis done in relation to this work was done through China Agricultural University and Anhui Agricultural University, and was conducted in accordance to all relevant laws and regulations of the People’s Republic of China and both China Agricultural University and Anhui Agricultural University.

Notes

¹ Additionally, compared with programme administrators at the central or prefectural level, community-level administrators are more likely to be held accountable by local people, and thus have greater incentives to honestly use their local knowledge to improve community well-being (Galasso and Ravallion 2005).

² The data comes from the White Book on Poverty Alleviation: China’s Experience and Contribution in 2021.

³ For instance, households with connections to the political elite are more likely to obtain benefits from the food-for-work programme in Ethiopia (Caeyers and Dercon 2012), the input voucher programme in Tanzania (Pan and Christiaensen 2012), the below-poverty-line card in India (Panda 2015), the targeted government transfer programmes in Indonesia (Alatas et al. 2019), and the rural minimum livelihood guarantee programme in China (Han and Gao 2019). Cheng, Wang, and Chen (2021), however, find that there is no political elite capture in China’s targeted poverty alleviation projects due to the accountability emphasized by the central government in the ‘follow-up checks’ policy.

⁴ Some examples of instances where favouritism is beneficial include receiving experts’ advice in the evaluation of biomedical research projects (D. Li 2017), obtaining bank loans (Haselmann, Schoenherr, and Vig 2018), and publishing academic articles (Ductora and Visserb 2022). Social connections have been shown to lead to information transmission in the contexts of labour markets (Mano et al. 2011) and the spread of scientific ideas (D. Li 2017).

⁵ For example, M. Li and Walker (2018) provide a case discussion of the Chinese rural Minimum Livelihood Guarantee programme and show inefficient targeting may still arise despite the local cadre being intermediaries.

⁶ The income data of poor rural areas in China comes from White Book on Poverty Alleviation: China’s Experience and Contribution by the Chinese government. The income level of Hong Village is equal to the sum of the net income of all households divided by the total population. We Winsorize the income in our sample at the 1st and 99th percentiles of every year to overcome the influence of outliers.

⁷ Compared to 2015, the average yield of traditional Chinese medicine, the main cash crop in Hong Village, decreased by 29.75% per mu in 2016, and the average yield per mu of wheat, corn, and potatoes decreased by 64.96%, 49.10%, and 40.65%, respectively.

⁸ There are a total of 248 households in Hong Village. Through our survey, we found that some registered households have relocated and settled in nearby cities, and so these are excluded from the survey. Additionally, some households are highly dependent on their parents or brothers for daily needs, and so these are regarded as being a part of other households. Therefore, we track 206 households each year.

⁹ Anti-poverty aid programmes are referred to as ‘projects’ in Chinese. We use the term ‘projects’ as a direct translation, and should be understood to be government anti-poverty aid programmes.

¹⁰ The following are characteristics of the social network in Hong Village. First, households within the village are closely connected. On average, each household has more than 70 ties with others, and 1.6 ties can connect any pair of families. This is consistent with Fei’s (1992) sociological description of the acquaintance society in rural China. Second, the connections among households are stable. We report the statistical characteristics of the social network in Appendix Table A2. which shows that key indicators have not varied much over the years. Finally, the distribution of social connections is non-uniform, with some households having many friends in the network, though some have relatively few.

¹¹ Strictly speaking, in making aid allocation decisions the village cadres will consider whether a family needs the support from the poverty alleviation projects based on the income information he can obtain about the household; that is, household income from previous years. Due to our lack of data before 2006, we have to use the income of the year in which the poverty alleviation project occurred as our measure of need.

¹² As a preliminary analysis step, we compute variance inflation factors (VIFs) to check for any multicollinearity problems. All VIFs are less than 5, indicating that there is no multicollinearity problem in the data.

¹³ This insight is consistent with previous studies that show that the formation of social networks is not random, and the links are a result of self-selection (e.g. Lee, Qiu, and Whinston 2016).

¹⁴ Readers may worry that self-interested village cadres will allocate more public resources to nearby ridges or valleys to gain benefits for themselves, and then the instrumental variable may affect the probability of households becoming beneficiaries. We do not deny the existence of this situation in rural China generally, however, as introduced in Section 2.2, the public resources discussed in this paper are poverty alleviation projects allocated to households, not to the village. The former’s benefits are private, while the latter’s benefits have externalities. Unless village cadres allocate projects to themselves, they cannot benefit from the projects. Therefore, we do not anticipate this issue in our case.

¹⁵ We use a two-stage least squares method to test the validity of the instrument variable. The Cragg-Donald Wald F-value of the first stage regression is 53.78, which is greater than the critical value of 10. From this test, we reject the null hypothesis of weak instrumental variables.

¹⁶ For example, some studies show that families with relatives who are political elites outside of the village also have a higher probability of obtaining poverty alleviation project aid (e.g. Han and Gao 2019; M. Li and Walker 2018).

¹⁷ Anthropological research has found that the closer the relationship between the giver and the recipient, the more valuable the gift (Yan 1996). Families in Hong Village, as in other places in China or the world, give gifts at weddings, funerals, and at other occasions to congratulate or appease their friends or relatives. Throughout our investigation timeframe, gifts were given monetarily and no longer in physical form as was done in decades prior. Households maintain a ledger to record gifts by other families, and we review nine household ledgers and analyse the differences in gift money for different types of social relationships. The ledger data shows that ordering social distance by gift value from distant to close is consistent with the five social relationships categories above.

¹⁸ In the event that a family is connected with different cadres to a different degree, we assign the connectedness relationship according to the closet connection for the household. For example, if a household is a close neighbour to the Party Secretary (a farther relationship) and a close relative with the village chief (a closer relationship), we assign the degree of connectedness associated with being a close relative (which is numerically 5).

¹⁹ The ‘follow-up check’ policy was implemented as part of the nationwide TPA policy that ran from 2013 to 2020 to eliminate absolute poverty. In 2015, the Chinese central government found relatively serious poverty identification errors in TPA through auditing. Thus, the Chinese government implemented the ‘follow-up check’ policy in August 2015 to strengthen project supervision. According to data from the Supreme People’s Procuratorate of China, in the first 10 months of 2016, there were 1623 cases of job-related crimes in the field of poverty alleviation investigated by procuratorates at all levels nationwide. However, this data accumulated to only 2295 in the past three years from 2013 to 2015. This indicates that, after the implementation of the ‘follow-up check’ policy, the Chinese government indeed has strengthened its supervision of poverty alleviation projects.

Additional information

Funding

The work was supported by the Social Science Foundation of Anhui [grant number AHSKQ2022D033].