Property Rights, Deregulation, and Entrepreneurial Development in a Transition Economy

Abstract

ABSTRACTThis article investigates the relative roles of formal property rights institutions versus deregulated markets in entrepreneurial development, based on China's market transition. Empirically, it is not yet known which set of institutions matters more for entrepreneurship, particularly in the long run, despite the existence of well-established theoretical arguments for each. Using provincial-level panel data from China's transition economy, this study has the following findings: On average, both formal protection of property rights and deregulated markets have positive effects on entrepreneurial development; yet, as market transition progresses, the effect of formal protection of property rights increases, while that of deregulated markets decreases. These results are robust to both multiple model specifications and an endogeneity test using an instrumental variable approach. Overall, therefore, while both sets of institutions indeed play positive roles in entrepreneurial development, property rights institutions may be more fundamental in the long run.