Developing Countries, China and Economic Institutions

A long series of studies have shown that it is the institutions that are responsible for various developmental progress. A large number of empirical analysis ranging from firm level to country level suggests that there is a very close and positive link between the functioning of the financial system and a long run growth and that the development of the financial system is a precursor and a necessary condition for sustained growth and economic transformation, especially in transition economies. It has also been argued that growth has a positive relationships with lending to the private sector. They have also found that lending to the public sector reduces growth. Some of the important institutions identified by these researchers are Financial institutions such as banks, stock exchanges, shares, the financial system such as currencies exchange system and others A proper legal system with an effective and impartial judicial system The impartial and reliable contract enforcement system is sine qua non of equitable and impartial enforcement relationships. The legal system is also responsible for certainty in property rights whether economic property or intellectual property. Political and Government institutions and other administrative organizations like My study did not find the development of the above institutions on the line of either Western Institutions or Japanese institutions in China. China does have banks but they are state owned and meant for financing state-owned enterprises, it has stock exchanges where private enterprise shares cannot be traded, nebulous property rights, a legal system that is still in its infancy. This study showed that these conventional institutions do not exist or they exist in an infant stage in China. However, the ethnic Chinese network along with preferential treatment given to the goods from China by Western countries together with no perceptible democratic labor rights appear to be responsible for phenomenal increase in foreign direct investment and exports from China in the last decade or so