Property right strengthening and modern market transformation: Evidence from rural land rent in China under the “Greif Hypothesis”

Avner Greif proposes in The Great Divergence that the historical divergence in the Western world originated from the breakthrough of personalized transactions in medieval trade to achieve-large-scale market expansion, with the key lying in universal property right protection. We refer to this as the “Greif Hypothesis” but it lacks micro-level empirical testing. Taking the development of rural land rental markets in China as an example, we examine the impact of the land right confirmation policy on market structure transformation and find that land right confirmation increases the probability of formal rent by 4%, reduces the probability of informal rent by 1.3%, and promotes the expansion of the rental market. Moreover, formal and informal markets are not interconnected or progressive but rather show a reciprocal relationship of growth and decline.