| Abstract | This paper presents a coherent framework to fully characterize dynamics of economic development and institutional changes in East Asian Development Model. In early stage of development, due to missing markets, government with high autonomy and capacity can make promote economic development through interlinked and relational arrangements (e.g., industrial policy). Market completion and economic development will unravel the interlinked and relational contract, and lead to a rule-based society. The paper thus shows that the role of government and hence appropriate institutions are functions of development stage. In particular, relation-based governance is suitable for investment-based stage, while rule-based governance is suitable for innovation-based stage. The paper ends up with some implications for China’s development and institutional change. |