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China’s Institutional Architecture: A New Institutional Economics and Organization Theory Perspective on the Links between Local Governance and Local Enterprises

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  • Krug, B.
  • Hendrischke, H.

Abstract

We start our exploration of China’s institutional change by asking what the China experience can tell us about institutional economics and organization theory. We point to under-researched areas such as the formation of firms and the interplay between firms and local politics. Our findings support the dynamic capability approach which concentrates on activities rather than on pre-defined groups and models institution building as a co-operative game between the local business community and local government agencies. We find that the analysis of firms has to set in before they are formed by entrepreneurs and networks and we identify political management as a core competence of these two groups. While this contradicts the conventional view of clientelism or principle agent relations as institutional building blocks, we don’t propose competing models. Instead, we suggest focusing on a dynamic process in which the role of players can change. Faced with the spontaneous emergence of institutions, our concept of institutional architecture captures the fact that the two models can co-exist side by side and that, once the dichotomy between formal and informal institutions is given up, there can be a transition from local patron-client relations to local business-state coordination.

Suggested Citation

  • Krug, B. & Hendrischke, H., 2008. "China’s Institutional Architecture: A New Institutional Economics and Organization Theory Perspective on the Links between Local Governance and Local Enterprises," ERIM Report Series Research in Management ERS-2008-018-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  • Handle: RePEc:ems:eureri:12191
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    Keywords

    diversity and convergence of institutions; dynamic capabilities; entrepreneurship; institutional change; networks;

    JEL classification:

    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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