ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Dictatorship, Democracy and Institutions

Using a systematic comparison of reform period policy choices and outcomes in China and India, this article explores the hypothesis that macroeconomic policies are influenced by the political structure. China's 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. Political structure did lead to specific inefficiencies in macroeconomic outcomes, but macro-institutional changes exist that can improve policy. More openness under similar labour endowments gives both countries the opportunity to commit to more effective, stable and yet stimulatory macroeconomic institutions and policies.

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