This EDI Policy Brief provides an accessible summary of key insights and findings that are presented in the EDI Working Paper on “Community networks and the growth of private enterprise in China.” It derives from a case study on the role of informal mechanisms in the growth of China’s private enterprises.
China has witnessed the same degree of industrialisation in three decades as Europe did in two centuries. Strikingly, this has occurred without the preconditions that are generally believed to be necessary for economic development: effective legal systems or well-functioning financial institutions. The authors find that reputation and trust within hometown community networks allowed millions of rural-born entrepreneur to establish and grow their businesses during the early stages of China’s development over 1990 to 2009.
The analysis is relevant to other countries by illustrating the potential for community institutions to contribute to growth, a potential which can be realized if these communities are sufficiently large, homogenous and cohesive.
- Ruochen Dai, Peking University
- Dilip Mookherjee, Boston University
- Kaivan Munshi, University of Cambridge
- Xiaobo Zhang, Peking University