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The Institutional Basis of China's Growth and Social Development

Paper Session

Saturday, Jan. 4, 2020 8:00 AM - 10:00 AM (PDT)

Manchester Grand Hyatt, Harbor D
Hosted By: Association for Comparative Economic Studies
  • Chair: Ruixue Jia, University of California-San Diego

Institutional Genes of China’s Socio-Economic Development

Chenggang Xu
,
Cheung Kong Graduate School of Business

Abstract

The Chinese endeavor of replacing imperial institutions with constitutionalism since the late 19th century ended up establishing a Soviet type of totalitarian regime in the mid-twentieth century. The subsequent Great Leap Forward and Cultural Revolution changed the institution into regionally decentralized totalitarianism, which is the institutional base of the post-Mao reform and explains the trajectories, difficulties, and limitations of China’s reforms. Why have China’s institutions evolved in the ways we observe? How does this institutional evolution affect socio-economic development?
To address these questions, I identify internal and external “institutional genes” and discuss their origins and evolutions. The so-called “institutional genes” are basic institutional structures, which determine players’ incentives and are repeatedly self-reproduced over long historical processes.

The Mandarin Model of Growth

Wei Xiong
,
Princeton University

Abstract

China’s economic reforms over the past 40 years have led to a mixed economic structure with the government continuing to play central roles in an increasingly market-driven economy. This paper expands a standard growth model of Barro (1990) to incorporate this structure, with a particular focus on including the agency problem between the central and local governments. To incentivize local governors, the central government has established an economic tournament, which generates not only intended incentives to develop local economies, a la Holmstrolm (1982), but also short-termist behaviors, a la Stein (1989). The latter channel helps to explain a series of challenges that confront the Chinese economy, such as over-leverage through shadow banking and unreliable economic statistics.

The Growth of Conglomerates in China

Chang-tai Hsieh
,
University of Chicago

Abstract

We use data on owners of Chinese firms from 1995 to 2015 to document the following facts: 1) The largest Chinese firms are conglomerates, where the largest 500 conglomerates in 2015 had an average of 17 thousand firms, and collectively account for almost half of all registered capital of all Chinese firms; 2) The largest conglomerates are linked via ownership networks; 3) The size of the conglomerate is increasing in the size and decreasing in the productivity of capital of the firm at the "center" of the conglomerates; 5) Conglomerates are typically partnerships between private firms and state owned firms, where state owned firms are typically at the center of the conglomerates; 6) The number and size of Chinese conglomerates increased from 1995 to 2015.

Student Quality, College Selectivity, and the Birth of Firms

Ruixue Jia
,
University of California-San Diego

Abstract

Most studies of entrepreneurship rely on survey data, which makes it difficult to link the entry decision ex ante with firm performance ex post. In this paper, we link three major Chinese administrative datasets – individual records in the National College Entrance Exam, college admission records, and data on owners of all Chinese firms – to study how student quality and college selectivity affect the probability of becoming firm owners and the long-run success of the firms. We find that (1) given college selectivity, better students are less likely to become firm owners, even though their firms would have greater long-run success, and (2) given student quality, better colleges are more likely to produce firm owners, although their influence on long-run success is nuanced. Considering several theories on entrepreneurship, we show that these patterns are consistent with the importance of outside option and entry barriers in shaping occupational choices.
Discussant(s)
Scott D. Rozelle
,
Stanford University
Chenggang Xu
,
Cheung Kong Graduate School of Business
Wei Xiong
,
Princeton University
Noam Yuchtman
,
London School of Economics
JEL Classifications
  • P3 - Socialist Institutions and Their Transitions
  • O4 - Economic Growth and Aggregate Productivity