Many governments use fiscal transfers to reduce regional inequality, yet discretionary allocation may also depend on informal communication among officials. We examine this mechanism in a large central-to-provincial transfer system, using policymakers’ shared workplace, alumni, and hometown backgrounds to measure social ties. Exploiting ministerial turnover and controlling for provincial leadership, we find that prior workplace ties significantly increase transfers. We then embed these estimates in a quantitative spatial model with trade, migration, input-output linkages, and fiscal-productivity effects. Social ties redirect resources toward richer provinces with stronger fundamentals, raising welfare and output while weakening redistribution. Under egalitarian weights, however, removing ties improves welfare.

Developing countries face high pharmaceutical prices despite the presence of multiple generic producers. One key reason is excessive spending on sales and marketing by drug firms. This paper examines how centralized drug procurement can curb such marketing efforts and reduce prices, using a policy experiment in China where certain generics are procured through centralized auctions in pilot cities. Winning firms gain large market shares directly without high marketing costs. We find that the centralized auction significantly reduces both sales costs and prices, with winning firms experiencing notable decreases in marketing-related labor demand.

Court capture in developing countries is pervasive, yet its economic effects remain underexplored. We study a Chinese reform that transferred financial and personnel authority over local courts from local to provincial governments. Exploiting the staggered roll-out, we find a 7.3% decline in local defendants’ win rates against non-local plaintiffs, alongside improved judicial quality. The reform encouraged smaller non-local firms to litigate and attracted non-local investment, potentially raising GDP by 1.9%. Yet favoritism toward politically connected firms and inter-provincial protectionism remain, and centralization itself promotes less qualified judges— revealing both its promise and limits.