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The Role of Government in East Asian Economic DevelopmentComparative Institutional Analysis$
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Masahiko Aoki, Hyung-Ki Kim, and Masahiro Okuno-Fujiwara

Print publication date: 1998

Print ISBN-13: 9780198294917

Published to Oxford Scholarship Online: January 2007

DOI: 10.1093/acprof:oso/9780198294917.001.0001

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Institutions, State Activism, and Economic Development: A Comparison of State‐Owned and Township‐Village Enterprises in China

Institutions, State Activism, and Economic Development: A Comparison of State‐Owned and Township‐Village Enterprises in China

Chapter:
(p.254) 9 Institutions, State Activism, and Economic Development: A Comparison of State‐Owned and Township‐Village Enterprises in China
Source:
The Role of Government in East Asian Economic Development
Author(s):

Yingyi Qian

Barry R. Weingast

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198294917.003.0009

This chapter examines why township-village enterprises (TVEs) are more efficient than state-owned enterprises (SOEs) in China. It is shown that China’s special form of decentralization — ‘market-preserving federalism, Chinese style’ — accounts for positive incentives at the lowest level of government. Local governments’ independent authority over their economies combines with the fiscal incentives, leading these governments to foster and maintain hospital economic environments. Governments at the lowest level in the hierarchy, townships and villages, do not have the means to insulate their firms from competition via trade barriers or to bail out ailing firms via macroeconomic tools. Given the structure of federalism, these governments can grow only if their economies grow.

Keywords:   incentives, government control, decentralization, federalism, local government

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