One country, two systems: How regional institutions shape governance modes in the greater Pearl River Delta, China

This paper, which is positioned in the interface of economic geography and institutional economics, studies the spatial aspect of institutions and its relevance for regional economic development in the Greater Pearl River Delta (GPRD). The GPRD consists of Hong Kong (HK) on the one hand, providing an advanced institutional system, and the Pearl River Delta (PRD) in China on the other hand, with its evolving institutional setting. Despite or even because of the one country, two systems' situation, firms in the GPRD have become established suppliers in the electronics value chain. The paper takes up the challenge of operationalizing and empirically studying the relations of HK firms and PRD producers adapted to regionally specific institutional pattern and demand for flexibility in production using a quantitative approach based in a survey of HK electronic firms and a logit model explaining the relations between HK firms and PRD producers. The analysis reveals that in the course of time, HK firms have used different entry modes as a response to the maturity the institutional setting.