Political rotation of city leaders and unrelated diversification in China

Abstract Recent studies stressed that external actors can help regions diversify into unrelated economic activities, but none has examined the role of the mobility of political leaders. Using micro-level data on China’s exports, investments, and city leaders, we find that, compared with leaders promoted locally, leaders who are rotated across cities introduce more unrelated activities, which further leads to better economic performance. Like other external actors, rotated leaders can also bring new knowledge and investments. Unlike other external actors, they are political actors. Whether they can translate new knowledge/investments into unrelated diversification is dependent on their political connections.