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The China Growth Miracle: The Role of the Formal and the Informal Institutions

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  • Kenneth S. Chan
  • Xianxiang Xu
  • Yuanhua Gao

Abstract

type="main" xml:id="twec12193-abs-0001"> This paper examines why China, in spite of its ordinary institutions, can grow so rapidly and for so long. Since each region in China has different quality of institutions and growth rates, we look into provincial and city data for this investigation. The variables formal and informal institutions are added into the conventional cross-section growth equation. The quality of the formal (informal) institution is taken from an opinion survey on the effectiveness of city governance conducted by the World Bank in 2006 (can be measured by the share of township-and-village enterprise in each province during 1978–2002 or by the trust index from surveys). We conclude that it is the informal institution that drives the rapid growth in China. Further investigation, using panel data and Arellano-Bond system GMM estimator, which controls for the missing fixed effect in cross-provincial regressions and provides useful instrument, confirms.

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  • Kenneth S. Chan & Xianxiang Xu & Yuanhua Gao, 2015. "The China Growth Miracle: The Role of the Formal and the Informal Institutions," The World Economy, Wiley Blackwell, vol. 38(1), pages 63-90, January.
    • Handle: RePEc:bla:worlde:v:38:y:2015:i:1:p:63-90
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    File URL: http://hdl.handle.net/10.1111/twec.2015.38.issue-1
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    Citations

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    Cited by:

    1. Chan, Kenneth S. & Dang, Vinh Q.T. & Li, Tingting, 2018. "Genetic diversity and economic development: Evidence from Chinese provinces," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 50-62.
    2. Min Zhong & Zengtao Wang & Xing Ge, 2022. "Does Cross-Border E-Commerce Promote Economic Growth? Empirical Research on China’s Pilot Zones," Sustainability, MDPI, vol. 14(17), pages 1-18, September.
    3. Chang, Pao-Li & Chen, Yuting, 2021. "Informal institutions and comparative advantage of South-based MNEs: Theory and evidence," Journal of Development Economics, Elsevier, vol. 148(C).
    4. Qiu, Tongwei & Zhang, Danru & Choy, S.T. Boris & Luo, Biliang, 2021. "The interaction between informal and formal institutions: A case study of private land property rights in rural China," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 578-591.
    5. Yongbo Ge & Xiaoran Kong & Geilegeilao Dadilabang & Kung‐Cheng Ho, 2023. "The effect of Confucian culture on household risky asset holdings: Using categorical principal component analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 839-857, January.
    6. Yu, Jian & Shi, Xunpeng & Cheong, Tsun Se, 2021. "Distribution dynamics of China's household consumption upgrading," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 193-203.
    7. Jing Wang & Kai Zhao & Yue Cui & Hui Cao, 2022. "Formal and Informal Institutions in Farmers’ Withdrawal from Rural Homesteads in China: Heterogeneity Analysis Based on the Village Location," Land, MDPI, vol. 11(10), pages 1-19, October.
    8. Lu, Liping & Wu, Yiping, 2020. "Does religion enhance firm performance? Evidence from private firms in China," China Economic Review, Elsevier, vol. 62(C).
    9. Deng, Zhongqi & Song, Shunfeng & Jiang, Nan & Pang, Ruizhi, 2023. "Sustainable development in China? A nonparametric decomposition of economic growth," China Economic Review, Elsevier, vol. 81(C).

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