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

This paper argues that there has been a common assumption in the field of comparative political economy that the key institutions of a given domestic political economy are relatively mutually reinforcing and tightly interconnected with at best some small friction in the interaction between the key parts. Mutually reinforcing and tightly interconnected institutions are ones with institutional complementarities where the arrangements in one institutional domain impact the difference in utility in another institutional domain. This paper dubs this assumption the holistic view of comparative political economy. Within the holistic view, interaction with foreign institutions can only lead to two outcomes. In the robust outcome, foreign institutions have little effect on the operation of domestic institutions. In the fragile outcome, the intrusion of foreign institutions disrupts the delicate balance of institutions within the domestic political economy with grave consequences for the economy. Arguing against the assumption that the holistic view is correct, the paper provides evidence of successful use of importing foreign institutions in China. Importing institutions is utilizing the institutional effects of institutions located abroad. It is not imitation or transfer of foreign institutions to be re-built within the domestic political economy. In the case of China, the financial institutions of advanced capitalism have encouraged technological development that China's own financial institutions failed to provide. Thus, this importation of foreign institutions far from being disruptive has had an ameliorative effect on China's economy and calls into question the basic assumption of the holistic view. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]