A Testable Theory of Institutional Change in Authoritarian Regimes

With the guidance of a new institutional framework, the theoretical modelling establishes the necessary and sufficient conditions for institutional change to occur in authoritarian regimes: first, external chocks must be strong, much stronger than in a democratic regime; second, the chocks must be of such a kind that gives rise to factional competition within the ruling group. It predicts that involvement by the ruled group brings about more extensive institutional change than that merely driven by the ruling group. The theory is then applied to explain rural China’s market transition. As institutional change defines pay-off structure, the extent of this change is approximated by the income advantage of cadre households relative to non-cadre households. Econometric tests based on a Chinese rural household panel data of 21 years confirm the theoretical prediction.