Do Property Rights matter for China's Private Sector? A Panel Data Analysis, 1997-2007

This paper examines the ambiguous property rights in China and if they affect the private sector development. The indicators for property rights include both broader property rights and intellectual property rights. The property rights theory offers a perspective as a fundamental component of a market economy to enable a growth of private enterprises. The incentives and constraints offered by the property rights regime is determining the outcome of how enterprises are performing and operating. Yet in China there has been a rapid development of the private sector, while the property rights stay inadequate. The private sector which is the dependent variable is measured by employment of private enterprises. The sample consists of 275 observations and is conducted cross-provincial with 25 Chinese provinces to examine the various contents of property rights regime and the private sector development. The data is collected from several Provincial Statistical Yearbooks, available at Chinese Statistical Database. A fixed effect model is performed, covering 10 years from 1997 to 2007. The main finding is that the four municipalities are at forefront driving the effect of intellectual property rights on size of the private sector while broader property rights does not have an effect. This implies that private firms find intellectual property rights protection essential when production is high-tech and innovative activities are prioritised. Other private firms find informal substitutions for weaker property rights.