Institution Building and Change in China

43 Pages Posted: 26 Aug 2006

See all articles by Barbara Krug

Barbara Krug

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Erasmus Research Institute of Management (ERIM)

H. Hendrischke

University of New South Wales (UNSW) - Faculty of Arts and Social Sciences

Date Written: February 6, 2006

Abstract

We advance a conceptual frame for explaining economic transformation in China that combines a dynamic and a comparative perspective by taking the analysis of Fiscal Federalism one step further. Using insights from the comparative business systems literature we show that devolution of power at the beginning of the reform process introduced local autonomy, which stimulated a diversity of local regulatory regimes. As the central political leadership is no longer the sole supplier of institutional change, local governments become equal contributors to the formation of local business systems. Yet, local governments only partially define emerging local business systems. Local governance at the enterprise level is defined by the interaction between political and economic entrepreneurship, or, phrased in institutional terms, local business systems emerge from the interplay between the formal architecture of local autonomy and the informal institution of networking. In a comparative perspective this interaction, and its underlying driving forces for co-operation, namely: procedural uncertainty, relational risk and institutional change, will lead to diversity in outcomes. In a dynamic perspective both market competition and networking will ensure further competition between business systems, while political unification, imitation or scale economies will ask for convergence of local business systems beyond the local nexus.

Keywords: China, Institutional Change, Transition Economy, Institution Building

Suggested Citation

Krug, Barbara and Hendrischke, Hans, Institution Building and Change in China (February 6, 2006). ERIM Report Series Reference No. ERS-2006-008-ORG. Available at SSRN: https://ssrn.com/abstract=902737

Barbara Krug (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Hans Hendrischke

University of New South Wales (UNSW) - Faculty of Arts and Social Sciences ( email )

Sydney
Australia
+61 2 9385 2187 (Phone)
+61 2 9385 1190 (Fax)

HOME PAGE: http://languages.arts.unsw.edu.au/staff/staff.php?first=Hans&last=Hendrischke

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