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Faculty Sponsor

Plamen Nikolov

Abstract

Because political party membership could potentially confer large economic benefits, economists have increasingly turned their attention to the role of political and social status in one’s life. The Chinese Communist party is the biggest political party in the world, and members are often motivated to join for economic reasons. Previous studies examine the relationship between Communist party membership and earnings and find positive correlation but this correlation may be partly or totally spurious, thereby generating upwards-biased estimates of the importance of political party membership – political party membership is likely to be correlated with a variety of other variables, which may well drive the correlation between political party membership and earnings. Using a 1993 housing dataset, this paper estimates the causal effect of Chinese party membership on monthly earnings in two major cities in China by employing a more robust estimation technique than previously used. I contribute to the existing literature by estimating the true causal effect of Communist party membership on wages with a propensity score matching technique, a quasi-experimental method which mimics a randomized control trial by constructing statistically similar control and treatment groups. I find that, on average, membership in the Communist party of China increases monthly earnings by 9 percent.

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