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The Quality of Domestic Legal Institutions and Export Performance

Theory and Evidence from China

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Abstract

  • Does the quality of domestic legal institutions matter for export performance? How does differential access to protections and privileges offered by informal institutions moderate the relationship between the quality of formal legal institutions and export performance? To answer these questions, we develop a theoretical framework drawing on insights from trade theory and institutional theory.

  • We propose that higher-quality legal systems in an exporter’s location are associated with higher export performance, particularly when trade partners face higher levels of external and internal uncertainty. We further propose that firms that have less access to local informal institutions to reduce transaction costs and opportunism benefit more from better-developed legal institutions.

  • Using information for more than 198,000 firms and legal quality information for 120 cities in China, we find strong support for our predictions. We discuss our contributions to the literature on institutions and export.

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Notes

  1. In the early 1980s, China’s central government introduced fiscal decentralization and delegated control rights and residual income rights over local public enterprises to local governments, which gave local governments strong incentives to protect their tax base by shielding local firms from interregional competition (Bai et al. 2004; Park et al. 2006).

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Acknowledgements

We thank the editor and two anonymous reviewers for their invaluable suggestions. We acknowledge the financial support from the Social Sciences and Humanities Research Council of Canada. The usual disclaimer applies.

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Authors and Affiliations

  1. Beedie School of Business, Simon Fraser University, Burnaby, Canada

    Jing Li

  2. Sauder School of Business, University of British Columbia, Vancouver, Canada

    Ilan Vertinsky

  3. Department of Finance and Accounting, China Europe International Business School, Shanghai, China

    Hua Zhang

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  1. Jing Li
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  2. Ilan Vertinsky
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  3. Hua Zhang
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Correspondence to Jing Li.

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Li, J., Vertinsky, I. & Zhang, H. The Quality of Domestic Legal Institutions and Export Performance. Manag Int Rev 53, 361–390 (2013). https://doi.org/10.1007/s11575-012-0146-z

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