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Lower Transaction Costs for Greater Innovation

China’s special economic and cooperation zones bring together diverse economic actors to reduce transaction costs, attract talent, and foster entrepreneurship and innovation. But if they are to reach their full potential, access to global markets – and a stable world economy – are essential.

HONG KONG – A century ago, prevailing microeconomic theories defined economies as a continuous flow of spot transactions between individual buyers and sellers. But in practice, Nobel laureate economist Ronald H. Coase observed in the 1930s, market economies are organized into firms, which consist of individuals coming together to conduct economic activities according to plans and priorities set by management. The reason, he concluded, is that market transactions are not costless, and firms are better equipped than individuals to minimize those costs.