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Reform Without Losers: An Interpretation of China's Dual-Track Approach to Transition

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Author Info
Lau, Lawrence J
Qian, Yingyi
Roland, Gérard

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Abstract

We develop a simple model to analyse the ‘dual-track’ approach to transition to a market economy as a mechanism for implementing efficient Pareto-improving economic reform, that is, reform achieving efficiency without creating losers. The approach, based on the continued enforcement of the existing plan while simultaneously liberalizing the market, can be understood as a method for making implicit lump-sum transfers to compensate potential losers of the reform. The model highlights the critical role of enforcement of the plan and full liberalization of the market track. We examine how the dual-track approach has worked in product and labour markets in China’s economic reform in practice.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1798.

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Date of creation: Mar 1998
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Handle: RePEc:cpr:ceprdp:1798

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Related research
Keywords: China; Dual-track price liberalization; Pareto-improving economic reforms; political restraints; Transition;

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Find related papers by JEL classification:
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
D60 - Microeconomics - - Welfare Economics - - - General
P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
P22 - Economic Systems - - Socialist Systems and Transition Economies - - - Prices
P41 - Economic Systems - - Other Economic Systems - - - Planning, Coordination, and Reform

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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  2. John McMillan, 1993. "Autonomy and Incentives in Chinese State Enterprises," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich.
    Other versions:
  3. Lau, Lawrence J. & Qian, Yingyi & Roland, Gerard, 1997. "Pareto-improving economic reforms through dual-track liberalization," Economics Letters, Elsevier, vol. 55(2), pages 285-292, August. [Downloadable!] (restricted)
    Other versions:
  4. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1992. "The Transition to a Market Economy: Pitfalls of Partial Reform," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 889-906, August. [Downloadable!] (restricted)
  5. Groves, Theodore, et al, 1994. "Autonomy and Incentives in Chinese State Enterprises," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 183-209, February. [Downloadable!] (restricted)
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  6. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," William Davidson Institute Working Papers Series 38, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  7. Yuanzheng Cao & Yingyi Qian & Barry R. Weingast, 1999. "From federalism, Chinese style to privatization, Chinese style," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 103-131, March. [Downloadable!] (restricted)
  8. Lin, Justin Yifu, 1992. "Rural Reforms and Agricultural Growth in China," American Economic Review, American Economic Association, vol. 82(1), pages 34-51, March. [Downloadable!] (restricted)
  9. Wei Li, 1999. "A Tale of Two Reforms," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 120-136, Spring. [Downloadable!] (restricted)
  10. Sicular, Terry, 1988. "Plan and Market in China's Agricultural Commerce," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 283-307, April. [Downloadable!] (restricted)
  11. Gérard Roland & Thierry Verdier, 1999. "Transition and the output fall," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 1-28, March. [Downloadable!] (restricted)
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  12. Sachs, J.D. & Woo, W.T., 1994. "Structural Factors in the Economic Reforms of China, Eastern Europe and the Former Soviet Union," Papers 94-01, California Davis - Institute of Governmental Affairs.
  13. Jinglian, Wu & Renwei, Zhao, 1987. "The dual pricing system in China's industry," Journal of Comparative Economics, Elsevier, vol. 11(3), pages 309-318, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gerard Roland & Thierry Verdier, 1999. "Law Enforcement and Transition," William Davidson Institute Working Papers Series 262, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  2. Bhaumik, Sumon & Estrin, Saul, 2005. "How Transition Paths Differ: Enterprise Performance in Russia and China," IZA Discussion Papers 1484, Institute for the Study of Labor (IZA). [Downloadable!]
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  3. Wei Li, 2001. "Corruption and Resource Allocation: Evidence from China," William Davidson Institute Working Papers Series 396, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  4. Nir Kshetri, 2009. "Entrepreneurship in post-socialist economies: A typology and institutional contexts for market entrepreneurship," Journal of International Entrepreneurship, Springer, vol. 7(3), pages 236-259, September. [Downloadable!] (restricted)
  5. Guy Shaojia Liu & Haiyan Song, 2003. "A Dual-Price Demand Theory for Economies under Transition," Journal of Chinese Economic and Business Studies, Taylor and Francis Journals, vol. 1(2), pages 185-203, January. [Downloadable!] (restricted)
  6. Nandini Gupta & John C. Ham & Jan Svejnar, 2000. "Priorities and Sequencing in Privatization: Theory and Evidence from the Czech Republic," William Davidson Institute Working Papers Series 323, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  7. Tian, Lihui & Estrin, Saul, 2005. "Retained State Shareholding in Chinese PLCs: Does Government Ownership Reduce Corporate Value?," IZA Discussion Papers 1493, Institute for the Study of Labor (IZA). [Downloadable!]
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  8. Daniel Berkowitz & David DeJong, 2001. "Policy Reform and Growth in Post-Soviet Russia," William Davidson Institute Working Papers Series 405, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  9. Jiahua Che, 2000. "Decentralized Financing, Centralized Financing and the Dual Track System: Toward a New Theory of Soft Budget Constraints," William Davidson Institute Working Papers Series 261, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  10. Wei Li, 2000. "Corruption and Resource Allocation Under China's Dual Track System," Econometric Society World Congress 2000 Contributed Papers 0179, Econometric Society. [Downloadable!]
  11. Rodrik, Dani, 2000. "Institutions For High-Quality Growth: What They Are And How To Acquire Them," CEPR Discussion Papers 2370, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Jiahua Che, 2003. "The Life Cycle of Government Ownership," William Davidson Institute Working Papers Series 2003-627, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  13. Michael Mandler, 2001. "Accessible Pareto-Improvements: Using Market Information to Reform Inefficiencies," William Davidson Institute Working Papers Series 398, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  14. Jeffrey D. Sachs & Wing Thye Woo, 2003. "China's Economic Growth After WTO Membership," Journal of Chinese Economic and Business Studies, Taylor and Francis Journals, vol. 1(1), pages 1-31, January. [Downloadable!] (restricted)
  15. Karen Eggleston & Keqin Rao & Jian Wang, 2005. "From Plan to Market in the Health Sector? China's Experience," Discussion Papers Series, Department of Economics, Tufts University 0501, Department of Economics, Tufts University. [Downloadable!]
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  16. Arvind Virmani, 2004. "Economic reforms: Policy and institutions some lessons from Indian reforms," Indian Council for Research on International Economic Relations, New Delhi Working Papers 121, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
  17. Franklin Allen & Jun Qian & Meijun Qian, 2002. "Law, Finance, and Economic Growth in China," Center for Financial Institutions Working Papers 02-44, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
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  18. Aaron Tornell, 1998. "Reform from Within," NBER Working Papers 6497, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Andrea Goldstein, 2005. "The Political Economy of Industrial Policy in China: The Case of Aircraft Manufacturing," William Davidson Institute Working Papers Series wp779, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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