Martin Raiser

Law and Finance in Transition Economies

This paper offers the first comprehensive analysis of legal change in the protection of shareholder and creditor rights in transition economies and its impact on the propensity of firms to raise external finance. Following La Porta et al. (1998), the paper constructs an expanded set of legal indices to capture a range of potential conflicts between different stakeholders of the firm. It supplements the analysis of the law on the books with an analysis of the effectiveness of legal institutions. Our main finding is that the effectiveness of legal institutions has a much stronger impact on external finance than does the law on the books, despite legal change that has substantially improved shareholder and creditor rights. This finding supports the proposition that legal transplants and extensive legal reforms are not sufficient for the evolution of effective legal and market institutions.

Subsidising Inequality: Economic Reforms, Fiscal Transfers and Convergence Across Chinese Provinces

The article investigates per capita income convergence across Chinese provinces over the 1978-92 period. It confirms previous studies which find a reduction in inter-regional income inequality over the course of economic reforms. However, the rate of convergence has declined since 1985 as a result of two factors. First, the shift from rural to industrial reforms has disproportionately benefited the relatively wealthier coastal provinces. Second, the system of inter-provincial fiscal transfers has prevented convergence among interior provinces, as transfers have gone to the richer among them. Further fiscal decentralisation and an acceleration of reforms in the interior provinces is thus unlikely to increase regional income inequality.

Evaluating Chinese Industrial Reforms: SOEs between Output Growth and Profit Decline

This paper evaluates Chinese industrial reforms against a background of conflicting evidence for rapid output growth and declining profitability in Chinas state-owned enterprises (SOEs). Using enterprise level data for various ownership forms from four coastal cities it is shown that the profitability decline in SOEs has little to do with allocative inefficiency such as excess wage payments. Rather, growing competitive pressures on the domestic market are responsible for the erosion of profit rates in Chinese industry. Industrial reforms that lead to an increase in managerial, autonomy and provide material incentives to workers can be shown to have a positive impact on enterprise profit rates. The overall favourable assessment of industrial reforms in China is qualified by substantial regional differences not covered by the sample data.