China’s Political Business Cycle

Yinan(Leo) Li

We present the evidence of political business cycles in China’s key macro variables since the economic reform starting in 1977. We construct a theory to explain the mechanism of the political cycle, incorporating the fundamental institutional features after the reform: economic decentralization, political centralization and central government intervention when necessary. An empirical test of our theory, using a panel of provincial level data, derives a result consistent with the predictions of our theory. We also clearly define the China Mode of Growth.

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