Importing Institutions to Enhance Performance: How Foreign Financial Institutions Ameliorate Institutional Deficiencies in China's Political Economy

Abstract

The field of comparative political economy has shared a common, albeit often implicit, assumption that the key institutions of a well performing domestic political economy (measured on a range of social and economic metrics) are relatively mutually reinforcing and tightly interconnected. Whatever domestic institutional friction occurs in these well performing political economies remains manageable as long as external influences do not intrude to throw the domestic institutional interactions off kilter. This paper calls this conception of the domestic institutional integrity of well performing political economies the holistic view of political economy and argues that the recent experience of China's technological development challenges it by demonstrating that countries may be able import institutional influences from abroad to ameliorate domestic institutional deficiencies. In China, the firms most active in contributing to China's technological development are those which are the farthest removed from China's malfunctioning domestic system of finance. These same firms are actively reliant on the financial institutions of advanced capitalism, which despite the current global financial crisis still better allocate funds than their Chinese counterparts.