Ownership and Institutions: Evidence in Rural China

Abstract

We study the relationship between ownership of firms and institutional environment by examining China's rural non-farm sector, which consists of both private enterprises and community government-run enterprises (known as township-village enterprises, or TVES). Our results showed that all the variables related to the legacy of planning favors TVE ownership, and all the variables related to market-oriented reforms and market development encourage private ownership. We also found that TVEs help increase the revenue shares of state and community governments, as well as rural nonfarm employment and income. However, their effect on rural income is insignificant given the level of nonfarm employment.