Abstract
In this paper we provide a simple model of an emerging market like China. We attempt to capture two characteristics of an emerging market: The simultaneous presence of market failures and government failures. In this model, we study the national welfare properties of four types of “governance” or “institutions”: A Benevolent Dictator, Extreme Economic Liberalism, Extreme Economic Nationalism and Factional Fighting with groups pressuring the government. We also discuss a case of the Realistic Dictator, who may switch from adopting liberal policies to nationalistic policies as the domestic market gets larger.
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