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Regional institutional development, political connections, and entrepreneurial performance in China’s transition economy

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Abstract

While previous research emphasizes the role of political connections in facilitating entrepreneurial performance during China’s early reform period (1978–1999), this study argues that regional institutions were increasingly conducive to entrepreneurial activities and, thus, also played a key role in China’s entrepreneurial success during that period. The purpose of this study is twofold. First, it aims to demonstrate how regional institutional development facilitated entrepreneurial performance in China. Second, it aims to understand how formal institutional development among Chinese regions affected the role of political connections. Using a two-level hierarchical dataset on Chinese private enterprises, this study finds that not only legal protection of property rights but also the development of market systems mattered for entrepreneurial performance. In addition, it shows that political connections played a diminishing role during regional institutional development in China.

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Notes

  1. Domestic private entrepreneurial firms in China are mostly small and medium-sized enterprises owned by individual entrepreneurs. There are two types of private firms: non-farm private enterprises (siying qiye) and individual enterprises (getihu). The difference between private enterprises and individual enterprises is the number of employees: A private firm is a private enterprise if it has at least eight employees, but an individual enterprise if fewer than eight employees. In this paper, I use “private firm” to indicate both types of enterprises.

  2. For details of the competition between the developmental state-like models and the liberal state-like models in reform-era China, see Huang and Di (2004) and Zhou (2011).

  3. Most of the high-tech firms were state-owned and the remaining were usually collectively owned in China by the late 1990s. High-tech firms founded by university researchers, for example, were usually registered as collective firms in the 1980s and 1990s (OECD 2007).

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Acknowledgments

This paper has been presented at the American Sociological Association annual meeting and the International Workshop on Regional, Urban, and Spatial Economics in China. I am grateful to the field editor, Gerald McDermott, and two anonymous referees for their helpful comments on an earlier version.

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  1. Department of Sociology, Chinese University of Hong Kong, Shatin, Hong Kong

    Wubiao Zhou

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Zhou, W. Regional institutional development, political connections, and entrepreneurial performance in China’s transition economy. Small Bus Econ 43, 161–181 (2014). https://doi.org/10.1007/s11187-013-9527-3

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