Governance and Foreign Investment in China, India, and Taiwan: Credibility, Flexibility, and International Business PDF
Preview Governance and Foreign Investment in China, India, and Taiwan: Credibility, Flexibility, and International Business
Revised Pages Governance and Foreign Investment in China, India, and Taiwan Yu Zheng challenges the conventional wisdom that democracy is the prereq- uisite for developing countries attempting to attract foreign direct investment (FDI) and promote economic growth. While democracies provide more cred- ibility than autocratic governments, democracies offer less flexibility than autocracies do. Zheng examines the relationship between political institutions and FDI through the use of cross- national analysis and cases studies of three rapidly growing Asian economies— in China, India, and Taiwan—w ith a focus on the role of a microinstitutional innovation known as a “special economic zone” (SEZ). China’s authoritarian system allowed for bold initiatives in launching radical economic reform, but its success in attracting FDI has been largely due to the increasingly credible investment environment as well as China’s central and local governments’ efforts to overcome constraints on investment. India’s democratic institutions provide more political assurance to foreign investors, but its market became conducive to FDI only when the government adopted investment policies that were more flexible. Taiwan’s democratic transition, which also shifted the combination of policy credibility and flexibility, was essential for the nation’s transformation of the investment climate during the periods of economic takeoff and sustained growth. In conclusion, Zheng finds that a more accurate understanding of the relationship between political insti- tutions and FDI comes from careful analysis of institutional arrangements that entail a trade- off between credibility and flexibility of governance. Yu Zheng is Assistant Professor of Political Science at the University of Con- necticut. Revised Pages Revised Pages Governance and Foreign Investment in China, India, and Taiwan Credibility, Flexibility, and International Business Yu Zheng The University of Michigan Press Ann Arbor Revised Pages Copyright © by the University of Michigan 2014 All rights reserved This book may not be reproduced, in whole or in part, including illustrations, in any form (beyond that copying permitted by Sections 107 and 108 of the U.S. Copyright Law and except by reviewers for the public press), without written permission from the publisher. Published in the United States of America by The University of Michigan Press Manufactured in the United States of America c Printed on acid- free paper 2017 2016 2015 2014 4 3 2 1 A CIP catalog record for this book is available from the British Library. Library of Congress Cataloging- in- Publication Data Zheng, Yu, 1963– Governance and foreign investment in China, India, and Taiwan : credibility, flexibility, and international business / Yu Zheng. pages cm. — (Michigan studies in international political economy) Includes bibliographical references and index. isbn 978- 0- 472- 11904- 2 (cloth : alk. paper) — isbn 978- 0- 472- 02957- 0 (e- book) 1. Investments, Foreign—C hina. 2. Investments, Foreign— India. 3. Investments, Foreign— Taiwan. 4. China— Politics and government—2 1st century. 5. India— Politics and government— 21st century. 6. Taiwan—P olitics and government— 21st century. I. Title. hg5782.z47195 2013 332.67'30951— dc23 2013035568 Revised Pages In memory of my late father, Zheng Xueliang Revised Pages Revised Pages Contents Acknowledgments ix Chapter 1 Political Institutions, Governance, and Foreign Direct Investment 1 Chapter 2 Credibility, Flexibility, and International Business: Cross- National Evidence 25 Chapter 3 Incentives and Commitment: The Political Economy of Development Zones in China 50 Chapter 4 Local Accountability under Authoritarianism: Evidence from Development Zones in China 77 Chapter 5 Unbundling the Rule of Law in China: Local Lawmaking Power and Private Investment 103 Chapter 6 The Political Economy of Special Economic Zones in India 132 Chapter 7 Democratic Transition, Institutional Innovation, and FDI in Taiwan 159 Conclusion 186 Appendix on Data 201 Notes 205 Bibliography 217 Index 245 Revised Pages Revised Pages Acknowledgments Completion of this book would be impossible without help and support from many people. I am privileged to have had a superb committee guiding me through my dissertation at the University of California, San Diego: Peter Cow- hey, Susan Shirk, Lawrence Broz, Roger Gordon, Stephan Haggard, and Barry Naughton. They have provided tremendous guidance and support. Susan Shirk and Stephan Haggard deserve special thanks for their unbelievable patience in reading many drafts of my work. I am grateful to many other scholars and teachers who have contributed to my intellectual growth. They include TaiM ing Cheung, Gordon Hanson, Miles Kahler, Thad Kousser, David Lake, Victor Magagna, Eddy Malesky, Megumi Naoi, Phil Roeder, Matthew Shugart, Bar- bara Walter, and Langche Zeng. I have benefited greatly from the stimulating academic affinities and mutual support among my fellow graduate students at UCSD. I am also grateful to Yvonne Lu and her family for their warm friend- ship and support. As this project grew from a dissertation into a book, many colleagues read various chapters and gave me helpful suggestions. At Harvard University, I thank Regina Abrami, Alastair Iain Johnston, Jeffrey Frieden, and Michael Hiscox. I also thank Ron Suleski and Wen- hao Tien for their excellent admin- istrative support. I am grateful for the friendship and mentorship of my col- leagues at the University of Connecticut. I would especially like to acknowledge the help of Oksan Bayulgen, Mark Boyer, Betty Hansen, Shareen Hertel, Peter Kingstone, Jeffrey Ladewig, Jeremy Pressman, and the late Howard Reiter. I thank Jennifer Fontanella and Sally Keelan for their very able administrative assistance. At various stages of the project, many other scholars gave me help- ful feedback. They include Tim Buthe, Tom Christenson, Tim Frye, Yasheng Huang, Nathan Jensen, James Kung, Kun- chin Lin, Borje Ljunggren, Pierre
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