The China experience: an institutional approach

Rule of law is commonly believed to be a prerequisite for long-term sustainable growth of a modern economy, where uniform and formal rules apply to all parties in predictable and non-discriminatory ways. During its economic reforms in the past four decades, China has relied upon many alternative arrangements that have served the main function of providing incentives for different groups of economic agents, but are not in line with the spirit of rule of law. Consequently, an important topic for future research is to test the validity of this argument: will China be able to maintain its long-term growth without fundamental changes in its institutional environment? Alternatively, will substitution mechanisms continue to induce effort and promote growth effectively? Another possibility is that we may have missed the improvement of rule of law during China’s reform era, perhaps due to lack of accurate measures. Thus, how can we better measure the institutional quality of various Chinese regions? And finally, what explains evolution of economic institutions in China and how does it relate to that of political institutions? Answers to these questions will undoubtedly help shed light on our understanding of institutional evolution in general.