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A Tale of Two Reforms

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  • Wei Li

Abstract

I identify the absence of well-functioning product markets in transition economies as a sufficient condition under which big bang reduces output initially, while a Chinese-style reform increases output. Big bang dismantles central planning or centralized organization of production, permitting monopolistic and vertically interdependent enterprises to pursue their own monopoly profits by restricting output and inter-firm trade to the detriment of the economy as a whole. The Chinese reform, by maintaining central planning but allowing enterprises to produce for the emerging product markets after they have fulfilled their output quotas under planning, gives enterprises incentives to expand output beyond planned targets.

Suggested Citation

  • Wei Li, 1999. "A Tale of Two Reforms," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 120-136, Spring.
    • Handle: RePEc:rje:randje:v:30:y:1999:i:spring:p:120-136
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    1. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766.
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    Cited by:

    1. Fidrmuc, Jan, 2003. "Economic reform, democracy and growth during post-communist transition," European Journal of Political Economy, Elsevier, vol. 19(3), pages 583-604, September.
    2. Tang, Rongsheng & Tang, Yang, 2022. "Market formation in China from 1978," Regional Science and Urban Economics, Elsevier, vol. 95(C).
    3. Haiwen Zhou, 2011. "Economic Systems and Economic Growth," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 39(3), pages 217-229, September.
    4. Guy Shaojia Liu & Haiyan Song, 2003. "A Dual-Price Demand Theory for Economies under Transition," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 1(2), pages 185-203.
    5. Jozef Konings & Patrick Van Cayseele & Frederic Warzynski, 2003. "The Effects Of Privatization And International Competitive Pressure On Firms??? Price-Cost Margins: Micro Evidence From Emerging Economies1," William Davidson Institute Working Papers Series 2003-603, William Davidson Institute at the University of Michigan.
    6. Svejnar, Jan, 2007. "China in Light of the Performance of Central and East European Economies," IZA Discussion Papers 2791, Institute of Labor Economics (IZA).
    7. Zhiyong Liu & Yue Qiao, 2012. "Abuse of Market Dominance Under China’s 2007 Anti-monopoly Law: A Preliminary Assessment," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 41(1), pages 77-107, August.
    8. Putu Anom Mahadwartha, 2010. "States Of Nature And Indicators Of Manager’S Corruption In Indonesia," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 4(3), pages 25-45.
    9. Jiahua Che & Giovanni Facchini, 2004. "Dual Track Liberalization: With and Without Losers," William Davidson Institute Working Papers Series 2004-669, William Davidson Institute at the University of Michigan.
    10. Lan, Xiaohuan & Li, Wei, 2018. "Swiss watch cycles: Evidence of corruption during leadership transition in China," Journal of Comparative Economics, Elsevier, vol. 46(4), pages 1234-1252.
    11. Jozef Konings & Patrick Van Cayseele & Frederic Warzynski, 2005. "The Effects of Privatization and Competitive Pressure on Firms' Price-Cost Margins: Micro Evidence from Emerging Economies," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 124-134, February.
    12. Berkowitz, Daniel & DeJong, David N., 2003. "Policy reform and growth in post-Soviet Russia," European Economic Review, Elsevier, vol. 47(2), pages 337-352, April.
    13. Wei Li, 2000. "Corruption and Resource Allocation Under China's Dual Track System," Econometric Society World Congress 2000 Contributed Papers 0179, Econometric Society.
    14. Lawrence J. Lau & Yingyi Qian & Gerard Roland, 2000. "Reform without Losers: An Interpretation of China's Dual-Track Approach to Transition," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 120-143, February.
    15. Jan Svejnar, 2002. "Transition Economies: Performance and Challenges," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 3-28, Winter.
    16. Jan Svejnar, 2006. "Strategies for growth : Central and Eastern Europe," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 205-233.
    17. Gordon, Roger H. & Bai, Chong-En & Li, David D., 1999. "Efficiency losses from tax distortions vs. government control," European Economic Review, Elsevier, vol. 43(4-6), pages 1095-1103, April.
    18. Gordon Roger H., 2010. "Public Finance and Economic Development: Reflections based on Experience in China," Journal of Globalization and Development, De Gruyter, vol. 1(1), pages 1-29, January.
    19. da Rocha, Bruno T., 2015. "Let the markets begin: The interplay between free prices and privatisation in early transition," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 350-370.
    20. Acharya Sanjaya & Signorelli Marcello & Vojinovic Borut & Oplotnik Žan Jan, 2013. "Alternative Approach to Economic Restructuring to Benefit the Poor – Sam Multipliers Analysis as Alternative Approach," Scientific Annals of Economics and Business, Sciendo, vol. 60(1), pages 182-201, July.
    21. Yingyi Qian, 1999. "The Institutional Foundations of China's Market Transition," Working Papers 99011, Stanford University, Department of Economics.
    22. Nhat Le, 2003. "Contingent and ambiguous property rights: The Case of China's Reform," International and Development Economics Working Papers idec03-4, International and Development Economics.

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    More about this item

    JEL classification:

    • O - Economic Development, Innovation, Technological Change, and Growth
    • P - Political Economy and Comparative Economic Systems

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