Local Governments' Adjustment on Investment Preferences and Enterprise Productivity: Empirical Evidence from the Work Reports of Prefectural-level Municipal Governments

The debate between "consumption-driven growth" and "investment-driven growth" has been a hot issue in the current economics community. This paper measures the investment preferences of local governments by the disparity between the investment growth target and the consumption growth target at the prefectural level. Taking the reform of local officials' performance assessment in 2013 as a quasi-natural experiment for the adjustment of local governments' investment preferences, this paper employs the intensity difference-in-differences (DID) method to empirically analyze the economic effects of the adjustment of investment preferences on micro-enterprises. It reveals three key insights: first, local governments had obvious investment preferences prior to 2013, which were significantly adjusted after 2013. Second, the adjustment of investment preferences has improved enterprise productivity through three critical mechanisms: the investment-consumption structure, enterprise operational autonomy, and market integration. Third, the adjustment of investment preferences did increase financial pressure, but it did not significantly increase the pressure on economic growth, while consumption-driven growth was a feasible way for local governments to promote stable economic growth. Therefore, the focus of local governments' policies for stable economic growth should shift from "investment-driven growth" to "consumption-driven growth", and resolutely implement the policy of giving priority to stabilizing and expanding consumption in the expansion of domestic demand; pay attention to promoting stable economic growth through market mechanisms and give full play to the role of an effective market; maintain an appropriate investment scale and continuously optimize the investment.