China's remarkable economic success rests on a foundation of political reform providing a considerable degree of credible commitment to markets. This reform reflects a special type of institutionalized decentralization that the authors call “federalism, Chinese style.” This form of decentralization has three consequences. First, it fosters competition, not only in product markets, but also among local governments for labor and foreign capital. This competition, in turn, encourages local government experimentation and learning with new forms of enterprises, regulation, and economic relationships. Second, it provides incentives for local governments to promote local economic prosperity. Finally, it provides a significant amount of protection to local governments and their enterprises from political intrusion by the central government.

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The authors investigate the relationship between constitutional design and the rule of law in emerging democracies. The authors provide a formal logic to the Madisonian assertion that increasing the number of veto players strengthens the rule of law. The model shows that as the number of veto players in government increases, their ability to collude on accepting bribes decreases; therefore, their incentive to vote on legislation strengthening the rule of law increases. The authors classify governments according to the number of veto players, following the logic proposed by Tsebelis. The authors test hypotheses derived from their model on 35 emerging democracies using veto-player data that they gathered for the analyses. The authors find that systems with multiple veto players have higher levels of the rule of law. Furthermore, independent of the number of veto players, presidential systems have lower levels of the rule of law than do parliamentary systems.

Does aid conditionality-the setting of policy goals in exchange for access to aid-promote reform? Many studies on the impact of aid and reform suggest not. However, few explicitly examine whether the impact of aid on reform is mediated by recipient regime type. I argue that conditional aid is effective but its efficacy depends on recipient countries' level of democracy because the value of aid to governments depends on the degree to which it helps them maintain power, and recent work shows that the marginal impact of aid on political survival increases with level of democracy. I test this argument on data from 68 countries over the period from 1980 to 1999. I focus on the impact of IMF and World Bank aid on fiscal reform, one of the most commonly stipulated conditions in aid-for-policy arrangements. I find that aid from the Bretton Woods institutions promotes fiscal reform, but only in more democratic countries.

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