Political Economy Seminar - Noam Yuchtman

State coercion is often viewed as a fundamental barrier to development, yet coercive state capacity has also accompanied many episodes of rapid growth. This paper argues that understanding the economic effects of state coercion requires recognizing its
 role in manipulating factor prices, which can generate both elite rent extraction and growth-enhancing resource reallocation. To study these potentially heterogeneous effects, we examine a judicial reform in China that reduced local governments' control over
 local courts, thereby constraining their coercive economic power. Using the staggered rollout of the reform across prefectures and rich administrative data, we show that the reform increased citizens' success in land and labor disputes and reduced protests
 over these issues. These legal constraints raised land and labor prices, reflecting markets' internalization of the reform's credibility, and reduced firm entry into land- and labor-intensive sectors. The aggregate implications were heterogeneous: in richer
 regions, the reform promoted entry into technology-intensive sectors and reduced allocative distortions; in poorer regions, comparable price changes generated weaker structural transformation and lower productivity. The results suggest that reducing coercion
 can strengthen rights and reshape markets, but its growth effects depend critically on the stage of development and pre-existing distortions.