Institutions, Contracts, and Economic Growth: What China Can Teach Latin America

Abstract

The objective of this study is to investigate whether the ability to enforce contracts is a significant determinant of economic growth and to generate knowledge for Latin America. Data from 30 provinces and 24 industries in China during the period 2000–2010 were analyzed. This period was selected due to the abundance of available data. The research measured contract intensity through the proportion of intermediate inputs that require relationship-specific investments. The results indicate that efficient contract enforcement has a positive effect on economic growth, and confirm the theoretical predictions developed, showing that higher contract intensity, when combined with strong contract enforcement, is associated with more robust economic growth. From a practical perspective, they highlight the importance of strengthening contract enforcement mechanisms to foster economic growth. Theoretically, the study provides empirical evidence supporting the idea that contract enforcement is a crucial component in economic development.