The role of the state in resolving business disputes in China

In this paper, we follow the theoretical framework proposed by Djankov et al. (2003) to investigate the role of the state in resolving business disputes and its impact on enterprise performance. Using a survey of private enterprises in China, we first construct an index to quantify the power of the state vis-a-vis the market in resolving business disputes, and then find that enterprises located in regions where the government has a greater relative power enjoy better performance. Our results suggest that the regulatory state has played a positive role in the economic transition in China.