Government expropriation and Chinese-style firm diversification

Julan Du, Yi Lu and Zhigang Tao

Journal of Comparative Economics, 2015, vol. 43, issue 1, 155-169

Abstract: Firm diversification across unrelated businesses is prevalent in many emerging economies, in contrast to the practices in developed economies. A fundamental difference between these two types of economies concerns with the existence of sound economic institutions including in particular the institutions constraining government expropriation of private properties. In this paper, using a survey data set of private enterprises in China, we find that severer government expropriation in the form of higher informal levies, extralegal payments, and entertainment fees causes firms to diversify. We then provide two case studies to highlight the extra costs that China’s private entrepreneurs need to bear for doing businesses, and how they can subsequently leverage their relations with government bureaucrats to diversify into various businesses.

Keywords: Government expropriation; Economic institutions; Firm diversification; China’s private enterprises (search for similar items in EconPapers)
JEL-codes: D23 G34 H2 L25 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:43:y:2015:i:1:p:155-169

DOI: 10.1016/j.jce.2014.07.003

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