Power System, The State And Economic Development

What kind of political institutions are more appropriate for economicdevelopment? Under what conditions may the institutions come into being? Whythere are substantial examples that inefficient political institutions persist a long timein history, even in the world which we live in now? This dissertation explores thelinks between political institutions and economic prosperity and try to give reasonableexplanations for the problems above.The approach which we take in the dissertation is mainly theoretical modelingsupplemented with historical illumination.These problems will be addressed in following chapters.Chapter 2 provides a review of literatures relative to the thesis.Chapter 3 distinguishes two dimensions of political institutions: democracy andthe rule of law. For the purpose of analyzing the influence of democracy on economicperformance of state, this chapter uses the "exit-voice" model which is developed byHirschman. Differing from most studies, we focus on the relationship betweendemocracy and the stability of economic development. Through the mechanism of"voice", democracy makes for the economic stability. Besides, we discuss theglobalization's impact on voice mechanism.From the perspective of constraints on political power, this chapter also providesa theoretical analysis for economic consequences of the rule of law. We extend theMcGuire-Olson model through introducing the exogenous variable: the rule of law.Under this framework, we show that the improvement in the rule of law will bringdown the deadweight loss of taxation. However, the effects on public expenditure areobscure. Finally, we illustrate some crucial questions on the basis of theoreticalpropositions which come from the extended model.Chapter 4 develops a game-theoretic approach to illustrate the origin andmaintaining of the rule of law. It focuses on "conflicts" rather than "coordinations"which have been discussed by Weingast. Our analyses show that the level of theendowment of power pertaining to middle class is crucial to the emergence andmaintaining of the rule of law. Besides, the political stakes and the techniques offighting are also important factors which have significant influence on the emergenceof the rule of law. It is a natural and interesting puzzle when we notice that autocracy revivesfrequently in history, despite of autocratic governments or dynasties being overthrown.We name this phenomenon the involution of autocracy, and try to explore thecausations. For this purpose, we develop a game-theoretic model to analyze theproblem. Our research shows that the key point is in the imbalance of powerendowment between elites and the bottom of society. Shock brings up uncertainty, andtherefore may enhance power endowment of the bottom class in society. However,both shock and enhancement are temporary in nature. As a result, the ruling class willnot be constrained by other people and the rule of law will hardly come into being.Chapter 5 explores the connections between political institutions and the fluidityof economic resources. It proves that the expansion and improvement of fluidity arecrucial for economic development in history.Comparing the different experiences of Europe and China, this chapter discoversthat a supportive political institution, which is formed according to the principle ofcheck and balance, is necessary for the expansion and improvement of fluidity ineconomic development. On the contrary, autocracy will hamper economic growthabsolutely in the manner of endangering fluidity.Chapter 6 tackles with a few of phenomena which result from some charactersinherent with China's economic growth. Firstly, we indicates that the key factorswhich result in huge income gap lie in the continuity of China's markettransformation and the failure in the rule of law. For the huge gap can not satisfy theimplied prerequisite of Kuznets Proposition, it will not converge automatically as theProposition predicts without any constraint. Rather, neither equality nor efficiencywill be realized. To solve the problem, we ought to speed up the process of the rule oflaw and improve the legal system. Secondly, we investigate the overheating in China'seconomic growth. Our research indicates that the transition of government functionsshould be the key point of China's reformation in the next stage.Concluding remarks and some questions for further study are contained inChapter 7.