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The Long-Term Effect of Western Customs Institution on Firm Innovation in China

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  • Gan Jin
  • Günther G. Schulze

Abstract

Can historical institutions affect today’s firm innovation? We analyze a historical experiment in 1902, when the foreign-run Chinese Maritime Customs Service (CMC), known for its efficient and transparent governance, took over some of the notoriously corrupt Chinese Native Custom stations and improved their governance. Using a large data set of contemporary industrial firms in China, we show that firms in locations historically affected by the CMC rules exhibit higher innovation intensities today, which can be attributed to the persisting norms of honesty and lawfulness embedded in the CMC institution. They reduce local corruption and stimulate firms’ investment in R&D and training to this day. We identify a causal effect by comparing firms in locations affected by the takeover with firms in similar but unaffected regions nearby. We also use an IV strategy that exploits the takeover criterion, which stipulated that Native Customs stations within a 25 km radius of a CMC customs station could be taken over by the Western powers.

Suggested Citation

  • Gan Jin & Günther G. Schulze, 2024. "The Long-Term Effect of Western Customs Institution on Firm Innovation in China," CESifo Working Paper Series 10967, CESifo.
    • Handle: RePEc:ces:ceswps:_10967
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    More about this item

    Keywords

    innovation; persistence; institutions; corruption; China;
    All these keywords.

    JEL classification:

    • N75 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Asia including Middle East
    • N45 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Asia including Middle East
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • Z10 - Other Special Topics - - Cultural Economics - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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