Clan Networks, Market Embeddedness and Industry Growth

In the process of market-oriented transition, the kinship-based clan network embeds itself in the market opportunity so as to compensate for the deficiencies in the formal institution. This paper takes as an external market opening shock after China's accession to the WTO in 2001. It compares the growth rate of manufacturing industries with different exposure to the shock in regions with varying clan densities. The triple differences estimation reveals that, relative to regions with lower clan densities, industries benefiting more from external market opening witness faster post-WTO growth in regions with higher clan densities, which is achieved through improving the contractual environment and alleviating external financing constraints in the respective regions. This study helps elucidate the market embedding of traditional culture and the logical connotation of China's institutional opening-up.