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Dictatorship, Democracy and Institutions: Macropolicy in China and India

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  • Ashima Goyal

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  • A. K. Jha

Abstract

We explore the hypothesis that macroeconomic polices are influenced by political structure, through a systematic comparison of reform period macroeconomic policy choices and outcomes, in China and India. One decade lagged Indian reform in the context of similar economic and very different political structures offers a powerful natural experiment. Chinese low but positive real interest rates, facilitated by greater exchange rate volatility, and high infrastructure investment allowed it to outperform India in its first post reform decade. We find political structure did lead to specific inefficiencies in macroeconomic outcomes but macro-institutional changes exist that can improve policy. More openness under similar labor endowments give both countries the opportunity to commit to more effective, stable yet stimulatory, macroeconomic institutions and policies.

Suggested Citation

  • Ashima Goyal & A. K. Jha, 2005. "Dictatorship, Democracy and Institutions: Macropolicy in China and India," Working Papers id:264, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:264
    Note: Working Papers
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    References listed on IDEAS

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    1. Yun-Wing Sung, 1996. "Chinese Outward Investment in Hong Kong: Trends, Prospects and Policy Implications," OECD Development Centre Working Papers 113, OECD Publishing.
    2. Djankov, Simeon & Glaeser, Edward & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2003. "The new comparative economics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 595-619, December.
    3. Liu, Xiaming & Wang, Chengang & Wei, Yingqi, 2001. "Causal links between foreign direct investment and trade in China," China Economic Review, Elsevier, vol. 12(2-3), pages 190-202.
    4. Goyal, Ashima, 2002. "Coordinating monetary and fiscal policies: a role for rules?," MPRA Paper 29200, University Library of Munich, Germany.
    5. Easterly, William & Levine, Ross, 2003. "Tropics, germs, and crops: how endowments influence economic development," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 3-39, January.
    6. Marc G Quintyn & Bernard J Laurens & Hassanali Mehran & Tom Nordman, 1996. "Monetary and Exchange System Reforms in China; An Experiment in Gradualism," IMF Occasional Papers 141, International Monetary Fund.
    7. Terry Sicular, 1998. "Capital Flight and Foreign Investment: Two Tales From China and Russia," The World Economy, Wiley Blackwell, vol. 21(5), pages 589-602, July.
    8. Goyal, Ashima, 1999. "The Political Economy of the Revenue Deficit," MPRA Paper 29980, University Library of Munich, Germany.
    9. Allan Drazen, 1996. "The political economy of delayed reform," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(1), pages 25-46.
    10. Mariano Tommasi & Pablo T. Spiller & Ernesto Stein, 2003. "Political Institutions, Policymaking Processes, and Policy Outcomes. An Intertemporal Transactions Framework," Working Papers 59, Universidad de San Andres, Departamento de Economia, revised Jul 2003.
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    Cited by:

    1. Ashima Goyal, 2005. "Incentives from exchange rate regimes in an institutional context," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2005-002, Indira Gandhi Institute of Development Research, Mumbai, India.
    2. Ashima Goyal, 2005. "“Incentives from Exchange Rate Regimes in an Institutional Context"," Macroeconomics Working Papers 22370, East Asian Bureau of Economic Research.

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