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The Emergence of Market Practices in China's Economic Transition: Price Setting Practices in Shanghai's Industrial Firms


  • Douglas Guthrie


This study focuses on the ability for medium- and large-scale economic actors to set prices independent of state control in reform era China. Analysis of a random sample of firms in industrial Shanghai shows two significant findings. First, in support of theories of path dependence, a firm's position in the administrative hierarchy of the former command economy has a significant impact on the freedom the firm has to set prices; firms closer to the central government are significantly more likely to set pr-ices independent of state control. This finding offers a counter perspective to studies that have argued, based on a lack of gains in productivity, that reforms are not being enacted in the upper levels of China's industrial hierarchy. Second, firms are influenced by formal relationships with foreign joint venture partners, as those with joint venture partnerships are significantly more likely to set prices independent of state control. This finding offers empirical support for the idea that foreign investment has an on-the-ground impact on the decisions and practices of firms in China's transitional economy.

Suggested Citation

  • Douglas Guthrie, 1998. "The Emergence of Market Practices in China's Economic Transition: Price Setting Practices in Shanghai's Industrial Firms," William Davidson Institute Working Papers Series 199, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1998-199

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    1. Jaideep Anand & Andrew Delios, 1997. "Location Specificity and the Transferability of Downstream Assets to Foreign Subsidiaries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(3), pages 579-603, September.
    2. Kenneth J. Arrow, 1962. "The Economic Implications of Learning by Doing," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 155-173.
    3. Beamish, Paul W. & Inkpen, Andrew C., 1998. "Japanese firms and the decline of the Japanese expatriate," Journal of World Business, Elsevier, vol. 33(1), pages 35-50.
    4. Harrison, Ann, 1994. "Multinationals in economic development: the benefits of FDI," MPRA Paper 36270, University Library of Munich, Germany.
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