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week9_1 - Kinship Networks and Entrepreneurs in China's...

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AJS Volume 109 Number 5 (March 2004): 1045–74 1045 2004 by The University of Chicago. All rights reserved. 0002-9602/2004/10905-0001$10.00 Kinship Networks and Entrepreneurs in China’s Transitional Economy 1 Yusheng Peng Chinese University of Hong Kong This research draws insights from two theoretical traditions: one is new institutionalism, which emphasizes the role of institutions, both formal and informal, in economic growth; the other is social network analysis, which highlights the role of interpersonal relations in pro- ducing and enforcing informal norms. Integrating these two ap- proaches yields the thesis that social networks affect economic growth via enforcing informal institutions. The article focuses on the economic payoff of kinship networks in the context of China’s rural industrialization to argue that kin solidarity and kin trust played an important role in protecting the property rights of private entrepreneurs and reducing transaction costs during the early stages of market reform, when formal property rights laws were ineffective and market institutions underdeveloped. Data from 366 villages show that the strength of kinship networks has large positive effects on the count and workforce size of private rural enterprises and insignificant effects on collective enterprises. INTRODUCTION Economists have long concurred that institutions matter for economic performance because they reduce uncertainty and lower the costs of trans- action and production (e.g., Coase 1960; Williamson 1985; North 1990). For instance, North and Thomas (1973) attribute the rise of the Western world to the creation and evolution of an efficient property rights insti- tution that, supported by a central state, brought the private rates of return close to the social rates of return. 1 This research was partly supported by the South China Program, Chinese University of Hong Kong. Thanks go to Jacqueline Adams, Alisa Lewin, Lucie Cheng, Deborah Davis, Philip Huang, James Kung, Gina Lai, Danching Ruan, Alvin So, Wang Feng, Min Zhou, Xueguang Zhou, and the AJS reviewers for their helpful comments. Direct all correspondence to Yusheng Peng, Department of Sociology, Chinese University of Hong Kong, Shatin, NT, Hong Kong. E-mail: [email protected]
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American Journal of Sociology 1046 Institutions can be either formal or informal. A large part of our social and economic life is governed by informal norms (North 1994; Ellickson 1991; Posner 2000; Nee and Ingram 1998). Criticizing Coase’s exclusive focus on formal laws of property rights, Ellickson (1991) argues that in- formal norms in everyday life interactions subsume a large part of the costs of formal policing and enforcement. North (1994) emphasizes that informal rules provide legitimacy to formal rules. Whether a formal in- stitution can achieve hoped-for results depends to a large extent on whether it is supported by informal institutions such as customs, traditions, and codes of behavior. Study of reform economies should pay particular attention to informal institutions because—unlike formal in-
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