Do institutions not matter in China? Evidence from enterprise- level productivity growth

This study addresses the apparent puzzle that China achieved sustained and rapid economic growth despite weak institutions. From a World Bank survey of 1,616 manufacturing enterprises in 18 cities, we extracted two measures of institutional quality: property rights protection (share of government officials oriented toward helping rather than hindering business), and contract enforcement (likelihood that the legal system would uphold contract and property rights in business disputes). We found that enterprises that were more reliant on the external environment grew faster in regions with better institutions. To address concerns of endogeneity, we used the population in the respective city around 1918-19 as an instrument for property rights, and an indicator of whether the city was British administered in the late Qing Dynasty as an instrument for contract enforcement. Our results were more pronounced for private enterprises and in poorer cities.