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Does contracting institution affect the patterns of industrial specialization in China?

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  • He, Qing
  • Xue, Chang
  • Zhou, Shaojie

Abstract

This study evaluates the importance of contracting institutions as a source of comparative advantage across Chinese provinces. We find that industries differ in their reliance on relationship-specific investments. Provinces with better contracting institutions specialize in industries with more intensive relationship-specific investments. We implement two proxies to measure contracting institutions, including efficiency of the legal system and service of contract enforcement. The empirical results of this study indicate that contracting institutions play a role in shaping the patterns of industrial specialization. Specifically, the service of contract enforcement has the first-order effect on the patterns of industrial specialization in China; by contrast, legal jurisdiction plays a modest role.

Suggested Citation

  • He, Qing & Xue, Chang & Zhou, Shaojie, 2019. "Does contracting institution affect the patterns of industrial specialization in China?," China Economic Review, Elsevier, vol. 54(C), pages 191-203.
    • Handle: RePEc:eee:chieco:v:54:y:2019:i:c:p:191-203
    DOI: 10.1016/j.chieco.2018.11.003
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    Cited by:

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    4. He, Qing & Li, Xiaoyang, 2020. "The failure of Chinese peer-to-peer lending platforms : Finance and politics," BOFIT Discussion Papers 27/2020, Bank of Finland, Institute for Economies in Transition.
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    More about this item

    Keywords

    Contracting institution; Legal rule; Contract service; Industrial specialization; China;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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