Circle of fortune: The long-term impact of Western customs institution in China

This paper examines the long-run effect of the customs institution founded by the Chinese Maritime Customs (CMC), a foreign-run customs agency established in the mid-19th century in China. A historical natural experiment is exploited to identify a causal effect: in 1902, the CMC took over a number of Chinese Native Customs stations, for which it established clear procedural guidelines and improved transparency and efficiency, while the other Native Customs stations remained under Chinese authority. Using the historical criterion that determined which Native Customs stations were taken over – those located within a 25 km radius of a CMC customs station – as a source of exogenous variation in the quality of the local customs institution, I show that counties historically affected by the CMC institution are more developed today relative to nearby but unaffected areas. Moreover, today’s business and bureaucracy in the affected counties suffer less from corruption, suggesting that the long-run effect of institutions can be explained by the cultural norms it fostered in the local society.