http://repub.eur.nl/res/concept/jel-P3/ Recent publications classified by JEL Code P3 en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/12191/ 2008-04-17T00:00:00Z We start our exploration of China’s institutional change by asking what the China experience can tell us about institutional economics and organization theory. We point to under-researched areas such as the formation of firms and the interplay between firms and local politics. Our findings support the dynamic capability approach which concentrates on activities rather than on pre-defined groups and models institution building as a co-operative game between the local business community and local government agencies. We find that the analysis of firms has to set in before they are formed by entrepreneurs and networks and we identify political management as a core competence of these two groups. While this contradicts the conventional view of clientelism or principle agent relations as institutional building blocks, we don’t propose competing models. Instead, we suggest focusing on a dynamic process in which the role of players can change. Faced with the spontaneous emergence of institutions, our concept of institutional architecture captures the fact that the two models can co-exist side by side and that, once the dichotomy between formal and informal institutions is given up, there can be a transition from local patron-client relations to local business-state coordination. Krug, B. Hendrischke, H. http://repub.eur.nl/res/pub/8074/ 2006-10-09T00:00:00Z Does medical insurance affect health care demand and in the end contribute to improvements in the health status? Evidence for China for the year 2004, by means of the China Health and Nutrition Survey (CHNS), shows that health insurance does not affect health care demand in a significant manner. Counterfactuals suggest that full insurance coverage of the Chinese population will not radically change the health care decisions and may even enlarge the perverse effects of today’s health care system: insured persons are more likely to fall back on self-care when they are injured or ill than on the care of a local clinic. This effect is particularly strong in urban areas. In case of a severe injury hospital consultation is preferred to local clinic or self-care by most people, but still a substantial percentage (20 percent) resorts to self-care or ignores the illness. The high level of out-of-pocket expenses paid by both insured and uninsured patients lies at t! he root of this problem. Insurance does not offer real protection against unpredictable high health care expenditures and can lead people into a position of long-term poverty or serious liquidity problems. Dalen, H.P. van http://repub.eur.nl/res/pub/7853/ 2006-06-30T00:00:00Z The paper claims that the analysis of the private business sector needs to concentrate on entrepreneurship. Based on fieldwork the paper proceeds by describing how Chinese entrepreneurs perceive the (economic) problems whose solutions pre-determine the economic performance of new firms. Entrepreneurship takes the form of institution building by which the high transaction costs can be mitigated and the value of assets and contracts be protected. The empirical research identified corporate governance, incentive contracts, local autonomy and networking as the crucial “hybrids” for mobilising investment and limiting moral hazard. Krug, B. http://repub.eur.nl/res/pub/7854/ 2006-06-30T00:00:00Z The paper offers a frame for investigating the extent to which decentralisation, and subsequent locally chosen institutions shape private organisational and institutional innovation. To include the numerous locally based “economic regimes” matters as the resulting business system reflects political institution setting and private organisational innovation. Such a frame is a necessary first step for empirical studies attempting to explain the heterogeneity of China’s business systems, the emergence of hybrid organisations, and last but none the least, the different growth rates that can be observed across China. Krug, B. Hendrischke, H. http://repub.eur.nl/res/pub/7577/ 2006-03-10T00:00:00Z Bearing the legacy from central-planned system, the tax system in local China still lacks transparency and, in many cases, the liabilities of firms, especially those with extensive influences, are subject to negotiation despite the new tax-reform 1994. Applying Hirschman’s Exit-Voice theory, we construct a game model of interplay between firm and local government, in terms of exit and voice for preferential tax treatments, thereby revealing dynamics of these two options under rational entrepreneurship of economizing transaction cost. Suggested by the model, exit not only induces firm to opt for voice, it also underpins firm’s voice that forces local government to compromise. Particularly, when holding private information of exit cost, firm is able to mimic behaviors of those with high mobility so as to boost the effectiveness of voice. The empirical cases fully illustrate such rational entrepreneurship of exit plus voice to profit from local preferential policy. Zhu, Z. Hendrikse, G.W.J. Krug, B. http://repub.eur.nl/res/pub/7331/ 2006-02-06T00:00:00Z 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. Krug, B. Hendrischke, H. http://repub.eur.nl/res/pub/7188/ 2005-12-21T00:00:00Z China like other transition economies needs to establish a tax system compatible with a market economy, in particular, an efficient tax administration system with capable tax bureaucrats. The paper singles out the general and China-specific features by which central government attempts to accompany economic transformation via tax farming to tax bureaucratisation in tax administration. Based on empirical study in two provinces this paper shows that without including local government agencies and their budgets, China’s fiscal federalism cannot be analysed and argues that China’s emerging tax system depends on the institutional and organizational design that shapes the interaction between central government, local governments and economic agents. Zhu, Z. Krug, B. http://repub.eur.nl/res/pub/7175/ 2005-12-19T00:00:00Z (Last revised version December 2005) To address the problem why China, as a communist country, moves in the opposite direction when the public sector has undergoing a continuous growth in most Western economies since the World War II, we offer a new approach that the de facto fiscal decentralization curtails government size in transition China in addition to conventional explanations. Meanwhile, by analyzing panel data and various variables used by previous empirical studies, this paper tests the Leviathan hypothesis for vertical decentralization, horizontal fragmentation and intergovernmental collusion at central-provincial and provincial-local level. Our empirical results not only explain Chinese shrinking government size, but also lend support to Leviathan hypothesis, especially, under the condition of the absence of traditional democratic electoral constraint. Zhu, Z. Krug, B. http://repub.eur.nl/res/pub/12961/ 2005-02-01T00:00:00Z Trade policy and quality leadership in transition economies are analyzed in a duopoly model of trade and vertical product differentiation. We first show that the incidence of trade liberalization is sensitive to whether firms in transition economies are producers of low or high quality. Second, we find that neither free trade nor the absence of a domestic subsidy are optimal: Both a tariff and a subsidy increase price competition and while the former extracts foreign rents the latter results in quality upgrading. Third, there exists a rationale for a government to commit to a socially optimal policy to induce quality leadership by the domestic firm when cost asymmetries are low. Finally, we establish an equivalence result between the effects of long-run exchange rate changes and those of trade policy on price competition (but not on social welfare) Moraga-Gonzalez, J.L. Viaene, J.M.A. http://repub.eur.nl/res/pub/1821/ 2004-12-10T00:00:00Z This paper offers a new data set and window to empirically test Leviathan theory in the sense of China's transition economy. By combining time series and cross-section regression analysis and various variables used by previous empirical studies, we test the Leviathan hypothesis for vertical decentralization, horizontal fragmentation and intergovernmental collusion at national and provincial level, respectively. Our empirical results lend support to Leviathan hypothesis, especially, under the condition of absence of traditional democratic electoral constraint. Zhu, Z. Krug, B. http://repub.eur.nl/res/pub/6609/ 2004-11-16T00:00:00Z We build a simple theoretical model to understand why developing and transition economies have increasingly applied anti-dumping laws. To that end, we investigate the strategic incentives of oligopolistic exporting firms to undertake dumping in these economies. We show that dumping may be due to cross-country differences in income, to the extent of tariff protection and to the exchange rate depreciations observed recently. Dumping may arise even if consumers exhaust all arbitrage possibilities. Moraga-Gonzalez, J.L. Viaene, J.M.A. http://repub.eur.nl/res/pub/1785/ 2004-10-29T00:00:00Z The purpose of this paper is to describe the development of China’s science and technology, their related institutions and use in the business world since the reforms started in 1978. Special attention will be given to the re-integration of high-technology into the private sector and the accompanying new type of organization: the New Technology Enterprises (NTEs) – or technological entrepreneurs – in the Development Zones. In an historical analysis we identify several phases of institutional reforms and international technology transfer. The present state of Science & Technology is analysed in terms of information infrastructure, educational system and innovative capability. The analysis shows the still underdeveloped parts of a science and technology supporting environment. The analysis discusses the basic features of the high-technology industry and identifies the information and communication technology (ICT) sector as the most important sector of the industry. This sector is growing fast none the least due to the attention the reform policy has paid to its development since 1978. Specifically the role of NTEs – who are pre-dominantly ICT oriented – in Development Zones is interesting and important. We argue that the NTEs play a large role in the development of private high-technology. We propose a system for technological entrepreneurship and identify computer hardware and software as key sectors for NTEs and high-technology development. Greeven, M.J. http://repub.eur.nl/res/pub/1787/ 2004-10-29T00:00:00Z This article firstly present a systematic overview on national tax regime by classifying China’s tax regime into three broad phases in context of underpinning market-oriented institutional development during last two decades and, then, in supplement to previous literatures that largely stop at provincial level, unveil the complex and obscure local tax regime based on sub-provincial field research in Zhejiang and Jiangsu province. The authors observed dual existing tax regimes: the hard and standardized state tax regime under central custody versus de facto soft and flexible local tax regime under local promotion and argue that despite central persisting initiatives in unifying tax regime and recentralization, local variation and divergence continue to play indispensable role in implementation of central reform due to China’s sheer size, geographical, cultural and resource endowment disparity as well as local state’s self-interest seeking inevitably induces localized adaptation of central policy and, consequently, calls for further decentralization. Zhu, Z. Krug, B. http://repub.eur.nl/res/pub/6608/ 2004-05-01T00:00:00Z Anti-dumping actions are now the trade policy of choice of developing and transition economies. To understand why these economies have increasingly applied anti-dumping laws, we build a simple theoretical model of vertical intra-industry trade and investigate the strategic incentives of exporting firms to undertake dumping. We show that the definition of dumping matters. Based on a comparison of low-quality and high-quality prices, only unilateral dumping by the low-quality firm obtains. By contrast, the standard WTO definition leads to either reciprocal or unilateral dumping depending on differences in incomes and on the height of tariff protection and of the exchange rate depreciations. Moraga-Gonzalez, J.L. Viaene, J.M.A. http://repub.eur.nl/res/pub/6655/ 2004-03-23T00:00:00Z We analyze the dynamics of Chinese comparative advantage as measured by export shares and the Balassa index using 3-digit and 4-digit sectors for the period 1970 – 1997. We use novel tools to identify periods of rapid structural change and the persistence of comparative advantage, such as Galtonian regressions, probability-probability (p-p) plots, and the Harmonic Mass index, to supplement the usual descriptive statistical methods and mobility indicators associated with Markov transition matrices. Hinloopen, J. Marrewijk, J.G.M. van http://repub.eur.nl/res/pub/13011/ 2004-01-01T00:00:00Z We analyze the dynamics of Chinese comparative advantage as measured by export shares and the Balassa index using 3-digit and 4-digit sectors for the period 1970 – 1997. We use novel tools to identify periods of rapid structural change and the persistence of comparative advantage, such as Galtonian regressions, probability-probability (p-p) plots, and the Harmonic Mass index, to supplement the usual descriptive statistical methods and mobility indicators associated with Markov transition matrices. Hinloopen, J. Marrewijk, J.G.M. van http://repub.eur.nl/res/pub/1841/ 2004-01-01T00:00:00Z China like other transition economies needs to establish a tax regime compatible with a market economy. The paper singles out the general and China-specific features by which national legislation attempts to accompany economic transformation. Based on an empirical study in two provinces this paper shows that without including local government agencies and their budgets, China’s fiscal federalism cannot be analysed. This paper argues that China’s emerging tax regime depends on the institutional design that shapes the interaction between firms (as major tax payers at the local level), local government agencies, and the national tax administration. Krug, B. Zhu, Z. Hendrischke, H. http://repub.eur.nl/res/pub/1842/ 2004-01-01T00:00:00Z This paper attempts to explain how institutions in the reform era of China have evolved by looking into the FDI policies and regulations. As history matters, we don’t look solely into the previous direct stage to the reform era, and rather look into a longer history starting from prior to the 14th century. The study shows that a dimension of time is crucial to understand institutional change in China. Though the initiation of the open-door policy in the reform era is commonly regarded as path-break event, we claim that this institutional change is a path dependent event from a longer historical view. The path takes a zigzag that is shaped by interaction among interested parties: the central government, local governments and economic agents (foreign investors in terms of the open-door policies). The historical study shows that mutual needs and their behaviours influence their attitudes which further influence institutional building. This also further implies how Chinese institutions may evolve in the future and what we should concern more about institutional changes in transitional economies. Zhang, X. Krug, B. Reinmoeller, P. http://repub.eur.nl/res/pub/817/ 2003-09-03T00:00:00Z Ten Central and Eastern European countries, as well as Cyprus and Malta, have applied for membership of the European Union. Membership involves, among others, alignment of the taxes on tobacco products. Within the acquis communautaire, accession countries can choose between a predominantly specific and a predominantly ad valorem excise regime. The choice affects revenue, tobacco consumption control, and EU competition. This paper examines the arguments and concludes that a predominantly specific regime seems to be the preferred choice. Cnossen, S. http://repub.eur.nl/res/pub/71/ 2001-02-09T00:00:00Z This paper is part of a broader research project that aims to analyse the emerging private business sector in China by focusing on three topics. Krug, B. Hendrischke, H.