Leveraging Asian institutions to deepen theory: A transaction cost perspective on relational governance

Is guanxi China-specific? Will it wane as China develops? I look at guanxi as a relation-based way to enforce transactions, and argue that it is a type of external hybrid used whenever the output constraints of market transactions must be supplemented by some behavior constraints. Drawing on transaction cost and network theories and on the new institutional economics and private ordering literatures, I specify the advantages and drawbacks of guanxi. I conclude that it is not China-specific and that it will survive further improvements in Chinese market and judicial institutions, although its scope will be somewhat reduced.