The value of transition periods: Do city-county mergers promote economic development?

The effects of city-county mergers on economic development have been the subject of debate in theory and practice. Based on the subdivision of the fiscal relationship between cities and merged counties, this study uses data from 2000 to 2019 and employs a staggered difference-in-difference model. The results show that counties may experience improved economic performance after mergers by enjoying a de facto fiscal system transition period. In particular, the merged areas belonging to the county-level city administrative level or under the province-managing-county fiscal system have significantly benefited from the transition periods. These findings suggest that it is important for policymakers to fully consider the transition period's setting, which can help reduce the friction cost in the adjustment of administrative divisions and ensure the smooth development of the economy.