Reform or Revolution: Elites’ Choices under Negative Shocks and the Economic Outcomes

Abstract

Political elites can establish institutions that secure their political and economic resources. When external shocks threaten their interests, they can respond in one of two ways: reform or revolution. This study focuses on the jinshi class of the Qing dynasty, a group of young political elites who had passed the highest level of the imperial civil examination and were about to embark on official careers. By constructing a database of jinshi from 1878 to 1905, I analyze how those influenced by the intense debate over China’s political future—triggered by the defeat in the First Sino-Japanese War (1894–1895) and the signing of the Treaty of Shimonoseki—chose between reform and revolution and the economic consequences of their choices. Using prefecture-year-level data and a difference-in-differences methodology, I find that after 1894, for every 1% increase in the number of affected jinshi from a prefecture, 1.5%–2.9% more modern firms were established in that prefecture compared to others.. Furthermore, during the 1911 Xinhai Revolution, which led to the collapse of the Qing dynasty, these affected jinshi’s home prefectures experienced fewer rebellions than others and did not produce significantly more revolutionaries. These findings suggest that, while the affected jinshi recognized the nation’s decline, they pursued reformist strategies, such as fostering economic development, to protect their interests.