Kinship Networks and Entrepreneurs in China’s Transitional Economy

Abstract

This research draws insights from two theoretical traditions: one is new institutionalism, which emphasizes the role of institutions, both formal and informal, in economic growth; the other is social network analysis, which highlights the role of interpersonal relations in producing and enforcing informal norms. Integrating these two approaches yields the thesis that social networks affect economic growth via enforcing informal institutions. The article focuses on the economic payoff of kinship networks in the context of China’s rural industrialization to argue that kin solidarity and kin trust played an important role in protecting the property rights of private entrepreneurs and reducing transaction costs during the early stages of market reform, when formal property rights laws were ineffective and market institutions underdeveloped. Data from 366 villages show that the strength of kinship networks has large positive effects on the count and workforce size of private rural enterprises and insignificant effects on collective enterprises.