Memories of Colonial Law: The Inheritance of Human Capital and the Location of Joint Ventures in Early-Reform China

Abstract

Using a unique data set of Chinese FDI contracts from the 1980s and 1990s, we explore mechanisms of historical persistence in the context of China's unique colonial experience. Using difference-in-difference estimations, we show that there was a tendency for foreign investors to form joint ventures in Chinese cities where their home country had a colonial presence in the 19th century. Using a difference-in-difference-in-difference approach we provide empirical evidence in support of the human-capital channel for explaining the historically persistent impact of colonial experience. Specifically, the most parsimonious explanation for our results is that legal human capital inherited from colonial times affected economic decisions in the reform era. Alternative explanations for long-term persistence are not supported. The study thus contributes to the research on history's long-lasting influence by highlighting the importance of one particular mechanism of persistence — historical memory of institutions, or simply legal human capital.