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Friends with Benefits: How Political Connections Help to Sustain Private Enterprise Growth in China

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  • James Kai‐sing Kung
  • Chicheng Ma

Abstract

By analysing data from a survey of 511 Chinese private enterprises, we find that their owners respond to government discrimination by developing political connections with government officials. A one‐standard‐deviation increase in the insecurity of property rights has the effect of increasing the number of ‘friends’ in the government by a substantial 22%. These ‘friends’ significantly help to mitigate by half the negative effect arising from the difficulties of obtaining land and excessive regulations on enterprise growth. This explains why an institutional environment of weak property rights has not stopped private enterprises in China from developing rapidly.

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  • James Kai‐sing Kung & Chicheng Ma, 2018. "Friends with Benefits: How Political Connections Help to Sustain Private Enterprise Growth in China," Economica, London School of Economics and Political Science, vol. 85(337), pages 41-74, January.
    • Handle: RePEc:bla:econom:v:85:y:2018:i:337:p:41-74
    DOI: 10.1111/ecca.12212
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