Economic Explanations On The Cause Of The Rise And Decline Of Nations

The study of the rise and decline of nations is significant and complicated, and trying to figure out the cause is much more difficult.In recent years, after 30 years’high-speed economic growth, China’s economic growth trend-is slowing down. If the determinant of economic development can be found, it has not only theoretical significance but also practical significance. This thesis studies the theory on explaining the rise and decline of nations, and takes China’s economic development since year 1949 as an example to analyze the cause of the different economic development situations before and after China’s reform and opening-up. This thesis argues institution is very important to nations’ economic development, and inclusive economic institution can strengthen incentive and promote economic growth; however extractive economic institution lacks incentive and has bad effects on economic development. Before the reform and opening-up, China’s extractive economic institution represented by Great Leap Forward and People Commune System cannot create effective incentive, which makes the economic subject lack of autonomy and enthusiasm for production, and restrains the economic development. After the reform and opening-up, extractive economic institution keeps turning into inclusive economic institution, economic institution keeps enhancing incentive for economic subject, inclusive economic system is built by the nation and China gets rapid economic gets development. Based on theoretical analysis, this thesis quantizes some institutional factor and studies the institution’s effect on economic development by econometric analysis. The result shows fiscal system, property system and trade system, whose main content are respectively fiscal decentralization, privatization and reform and opening, as an important part of inclusive economic institution, have a very strong explanatory power for economic development; this proves inclusive economic institution has positive impact on economy and demonstrates the theoretical analysis.