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Incremental Reform and Distortions in China's Product and Factor Markets

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  • Kong-Yam Tan

Abstract

The purpose of economic reform is to reduce distortions and enhance efficiency. However, when reforms are partial and incremental, individuals and local governments are often able to capture the rent inherent in the gradual transition process. Young (2000) warned that such rent-seeking behavior might lead to increasing market fragmentation. Empirical studies have shown the opposite in the product market. This article argues that as the rent from China's product market has been squeezed out due to deepening reforms, rent-seeking behavior may have shifted to the capital market. Further reforms are needed in the capital market to squeeze out these rent-seeking opportunities, just as those from the product and labor markets were squeezed out earlier. Copyright The Author 2007. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

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Bibliographic Info

Article provided by World Bank Group in its journal The World Bank Economic Review.

Volume (Year): 21 (2007)
Issue (Month): 2 (March)
Pages: 279-299

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Handle: RePEc:oup:wbecrv:v:21:y:2007:i:2:p:279-299

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Citations

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Cited by:
  1. Belton M. Fleisher & Dinghuan Hu & William McGuire & Xiaobo Zhang, 2009. "The Evolution of an Industrial Cluster in China," Working Papers 09-05, Ohio State University, Department of Economics.
  2. Ali, Merima & Peerlings, Jack & Zhang, Xiaobo, 2010. "Clustering as an organizational response to capital market inefficiency: Evidence from handloom enterprises in Ethiopia," IFPRI discussion papers 1045, International Food Policy Research Institute (IFPRI).
  3. Heerink, Nico & Bao, Xiaobin & Li, Rui & Lu, Kaiyu & Feng, Shuyi, 2009. "Soil and water conservation investments and rural development in China," China Economic Review, Elsevier, vol. 20(2), pages 288-302, June.
  4. Long, Cheryl & Zhang, Xiaobo, 2012. "Patterns of China's industrialization: Concentration, specialization, and clustering," China Economic Review, Elsevier, vol. 23(3), pages 593-612.
  5. Mukherjee, Anit & Zhang, Xiaobo, 2007. "Rural Industrialization in China and India: Role of Policies and Institutions," World Development, Elsevier, vol. 35(10), pages 1621-1634, October.
  6. Long, Cheryl & Zhang, Xiaobo, 2009. "Cluster-based industrialization in China: Financing and performance," IFPRI discussion papers 937, International Food Policy Research Institute (IFPRI).
  7. Chen, Xi & Zhang, Xiaobo, 2009. "The Distribution of Income and Well-Being in Rural China: A Survey of Panel Data Sets, Studies and New Directions," MPRA Paper 20587, University Library of Munich, Germany.
  8. Jianqing, Ruan & Zhang, Xiaobo, 2010. "Do geese migrate domestically?: Evidence from the Chinese textile and apparel industry," IFPRI discussion papers 1040, International Food Policy Research Institute (IFPRI).
  9. Li, Jia, 2012. "On the Empirics of China's Inter-regional Risk Sharing," MPRA Paper 37805, University Library of Munich, Germany.

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