How Can Local Governments Cope with Economic Policy Uncertainty from the Central Government: A Network Perspective

Policy uncertainty from higher levels of government is an important challenge for local governments’ effectiveness. Based on organizational theory, this paper proposes that forming inter-governmental networks is a strategic choice for local governments coping with central government economic policy uncertainty. I empirically test this by using 2005—2019 data on provincial party secretary off-site visits as a proxy for inter-governmental networks. The results show: (1) Central government economic policy uncertainty significantly increases the frequency of provincial party secretaries’ off-site visits; (2) Local governments’ choices for coping with uncertainty are heterogeneous. Local governments without horizontal inter-governmental ties and with stronger governance capabilities are more likely to strengthen their network connections with other local governments to address central government economic policy uncertainty; (3) Provincial party secretaries’ off-site visit positively moderate the relationship between economic policy uncertainty and firm innovation, demonstrating the effectiveness of intergovernmental networks in coping with uncertainty.