Clan culture and patterns of industrial specialization in China

The clan, an extant social organization formed 2000 years ago, bears a unique system of values still shaping fundamental institutions of modern society. In this research, we show how traditional clans affect the patterns of industrial specialization in China today. We find that industries dependent on relationship-specific investments tend to cluster in prefectures with strong clans. Our findings remain robust when considering alternative measures, including a set of historical and geographical correlates, and excluding cities in the southeast of China. Clans have a stronger effect on the specialization of the private sector than the state sector. In addition, the clan culture of immigrants matters for the industrial specialization of host regions. Our firm-level analysis further shows that the effects mainly originate from an overall improvement of the contracting environment by the clan culture.