Do Institutions Matter? Estimating the Effect of Institutions on Econo- mic Performance in China

This paper estimates the effect of institutions on economic performance using cross-city data from China. We argue that China’s ongoing reforms are part of a long and circuitous historical transition from antiquity to modernity, which started about 150 years ago. Learning from Western countries has been a central aspect of this historical process. The West had a large influence on the early stage of this transition, which has persisted to current reforms. This study uses the enrollment in Christian missionary lower primary schools in China in 1919 as an instrument for present institutions. Employing a two-stage least squares method, we find that the effect of institutions on economic performance in China is positive and significant. The results are robust according to various tests including additional controls, such as geographic factors and government policy-related variables.