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China and India - a Note on the Influence of Hierarchy vs. Polyarchy on Economic Growth

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  • Michael Keren

Abstract

This note tries to apply two versions of Sah and Stiglitz's "The Architecture of Economic Systems: Hierarchies and Polyarchies" model (SandS) to highlight some important differences between the development paths of India, the largest democracy, and China, the largest of the few remaining communist ruled economies. It argues that the original SandS model is applicable to private organisations but not to governments, to which a revised model is applied. It is the reliability of the government's decisions and the ability of the investor to rely on them that the modified SandS model tries to capture. As a communist country, China is as centralized as a huge polity of its size can be. A decision of the central authorities, a contract or promise confirmed by Beijing, can be relied upon. This provides a degree of security to the investor that his contract will be honoured and she will not be dispossessed. In the Indian federation the investor has to assure herself that all authorities involved agree to support her project, because any agency that has any say may be able to derail it. These differences are accounted for by the adjusted Sah and Stiglitz model. These differences affect not only the total quantity of investments but also their composition. Clearly, no claim is made or implied that the models introduced below provide the explanation for the differences in the development paths of these two Asian giants in the past few decades. They merely add a new perspective to the economic systems dimension of the development process.

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Bibliographic Info

Article provided by Cattaneo University (LIUC) in its journal The European Journal of Comparative Economics.

Volume (Year): 6 (2009)
Issue (Month): 2 (December)
Pages: 325-346

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Handle: RePEc:liu:liucej:v:6:y:2009:i:2:p:325-346

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Keywords: Hierarchies vs. polyarchies; Indian development; China's development;

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  1. Qian, Yingyi & Xu, Chenggang, 1998. "Innovation and Bureaucracy under Soft and Hard Budget Constraints," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 65(1), pages 151-64, January.
  2. Andrea Boltho & Maria Weber, 2009. "Did China follow the East Asian development model?," European Journal of Comparative Economics, Cattaneo University (LIUC), Cattaneo University (LIUC), vol. 6(2), pages 267-286, December.
  3. Weiye Li & Louis Putterman, 2008. "Reforming China's SOEs: An Overview," Comparative Economic Studies, Palgrave Macmillan, vol. 50(3), pages 353-380, September.
  4. Baek, Jungho & Koo, Won W., 2008. "A Dynamic Approach to the FDI-Environment Nexus: The Case of China and India," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 6508, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Laura Alfaro & Anusha Chari, 2009. "India Transformed? Insights from the Firm Level 1988-2005," NBER Working Papers 15448, National Bureau of Economic Research, Inc.
  6. Xu, Chenggang & Zhang, Xiaobo, 2009. "The evolution of Chinese entrepreneurial firms: Township-village enterprises revisited," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 854, International Food Policy Research Institute (IFPRI).
  7. Angus Maddison, 2009. "Measuring The Economic Performance Of Transition Economies: Some Lessons From Chinese Experience," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 55(s1), pages 423-441, 07.
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Cited by:
  1. Enrico Marelli & Marcello Signorelli, 2011. "China and India: Openness, Trade and Effects on Economic Growth," European Journal of Comparative Economics, Cattaneo University (LIUC), Cattaneo University (LIUC), vol. 8(1), pages 129-154, June.

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