Social networks, institutional development, and entrepreneurship in China

This paper explores how social network building, in functioning as an informal institutional mechanism, plays an important role in settings where rule-based formal institutions are incomplete or uneven in their coverage. Taking gift-giving as a proxy for social network investment, this study draws on a nationally representative household survey in China to examine its linkages with entrepreneurship. The results reveal a positive association between investing in social networks and both entrepreneurial participation and success. This relationship is statistically significant and robust against a battery of tests. By including regional institutional development in the empirical model, the interactions between different institutional layers are evaluated. Overall, this research indicates that stronger institutional development defines the boundary conditions of social network building in China.