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Shaomin Li 2008 NDSU 1
1976 in China…
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Shaomin Li 2008 NDSU 2
Funeral service for Mao
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Shaomin Li 2008 NDSU 3
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My researchInternational political economy
The transition of communist societiesGovernance environment across countriesCorruption and trust
International businessFDIFirm performanceIT and IB
Shaomin Li 2008 NDSU 4
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Shaomin Li 2008 NDSU 5
How can communism evolve into democracy and free market?
I
Mature democracy
Infant democracy
Non-democracy
Planned economy Free market
IV
II
III
Russia
ChinaN. Korea
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Shaomin Li 2008 NDSU 6
+ =?
China’s Transition
Rampant violation of property rightRapid economic growth
A counterfeit of “Starbucks”
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7
Rule-based vs. relation-based governance environment
How are business activities governed in different societies?
InformationThird-party verifiable vs. private information
EnforcementPublic enforcement vs. private enforcement.
A dichotomy between two modes of economic governance:
Relation-based Rule-based
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8
Relation-based Governance Rule-based Governance
Laws tend to be opaque and unfair, enforcement particularistic
Laws tend to be transparent, fair, and enforcement universal
Relying on private and local information
Relying on public information
Implicit and non-verifiable agreements
Explicit and third-party verifiable agreements
Person-specific and non-transferable contracts
Public and transferable contracts
High entry and exit barriers Low entry and exit barriers
Requiring minimum social order Requiring well-developed legal infrastructure
Low fixed costs to set up the system High fixed costs to set up the system
High and increasing marginal costs to maintain
Low and decreasing marginal costs to maintain
Effective in small and emerging economies
Effective in large and advanced economies
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9
Average transaction costs
Extent of marketTurning point
Relation-based
Rule-based
Relation-based governance will eventually destroy itself by facilitating market development
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10
Governance Environment and FDI
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0.000 2.000 4.000 6.000 8.000
Governance Environment Index
FD
I/F
I (%
)
Rule-basedRelation-based
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Shaomin Li 2008 NDSU 11
http://www.schev.edu/AdminFaculty/OFA/li.asp
In 2008, Virginia Governor Tim Kaine awarded me the “Outstanding Faculty Award” for “superior accomplishments in teaching, research, and public service.”