China as a regulatory state

Abstract

This paper, by using data from a survey of 3,073 private enterprises in China, constructs an index to quantify the power of government vis-à-vis market, which is the distinguishing feature of various models of a market economy including private orderings, private litigations through courts, and regulatory state (Glaeser and Shleifer, 2002, 2003; Djankov et al., 2003). It is found that enterprises located in regions with greater powers of government vis-à-vis market enjoy better performance, suggesting that regulatory state is an appropriate model of a market economy for China. Evidence is also presented to rule out the concern that these results are driven by rent-seeking activities.