Adaptive efficiency, institutional change and economic performance: evidence from the Chinese economy

Abstract

Adaptive efficiency is an ongoing process of innovation and modification in which institutions, organisations, and individuals interact with and adapt to each other as conditions change or shocks hit an economy. Building on this concept, this study first presents the adaptive efficiency framework which is concerned with how the institutional framework, the three functions of the market, and the organisations and individuals in an economy interact, adapt, and evolve over time to achieve sustainable, long-run economic growth. To test this framework, we present an empirical case study based on evidence from Chinese provinces that suggests that improving the quality of the institutional environment and the three functions of the market will lead to higher economic growth. Our findings also reveal significant variation in the effectiveness and impact of these factors at the regional level. The findings from this study have significant implications for reform and public policy as well as regional development strategy.