Dual Track Liberalization: With and without losers

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Dual Track Liberalization: With and without losers

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Jiahua Che
Giovanni Facchini

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Abstract

The success of the Chinese economic reforms has been linked by many observers to the implementation of a dual track liberalization mechanism. This approach, relying upon the continued enforcement of existing contracts and the simultaneous creation of a free market sector, represents a powerful mechanism in economic reform. If not anticipated, it implements an outcome that is both Pareto improving and efficiency enhancing as compared to the status quo. When the reform is instead anticipated, intertemporal arbitrage arises, potentially undermining these properties. Only when the original policy involves both price setting and quantity restrictions can anticipated dual track liberalization maintain its attractiveness. While these conditions correspond well to the circumstances faced by transition economies, our analysis invites some caution as for the further applicability of the Chinese approach to economic reform.

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Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 123.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:123

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Paper
- Che, Jiahua & Facchini, Giovanni, 2004. "Dual Track Liberalization: With and Without Losers," Working Papers 04-0100, University of Illinois at Urbana-Champaign, College of Business. [Downloadable!]
- Jiahua Che & Giovanni Facchini, 2004. "Dual Track Liberalization: With and Without Losers," William Davidson Institute Working Papers Series 2004-661, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
- 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 Stephen M. Ross Business School. [Downloadable!]

Find related papers by JEL classification:
P2 - Economic Systems - - Socialist Systems and Transition Economies
F1 - International Economics - - Trade

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-10-30 (All new papers)

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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Other versions:
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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)
Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December. [Downloadable!] (restricted)
Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
Other versions:
- Alberto Alesina & Allan Drazen, 1989. "Why are Stabilizations Delayed?," NBER Working Papers 3053, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Other versions:
- Dewatripont, Mathias & Roland, Gérard, 1993. "The Design of Reform Packages Under Uncertainty," CEPR Discussion Papers 860, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Dewatripont, M & Roland, G, 1992. "The Virtues of Gradualism and Legitimacy in the Transition to a Market Economy," Economic Journal, Royal Economic Society, vol. 102(411), pages 291-300, March. [Downloadable!] (restricted)
Other versions:
- Dewatripont, Mathias & Roland, Gérard, 1991. "The Virtues of Gradualism and Legitimacy in the Transition to a Market Economy," CEPR Discussion Papers 538, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)

Full references

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.)

Jiahua Che & Giovanni Facchini, 2005. "Dual Track Reforms: With and Without Losers," Development Working Papers 204, Centro Studi Luca d\'Agliano, University of Milano. [Downloadable!]
Other versions:
- Jiahua Che & Giovanni Facchini, 2007. "Dual Track Reforms: With and Without Losers," Economics Discussion Papers 646, University of Essex, Department of Economics. [Downloadable!]
- Che, Jiahua & Facchini, Giovanni, 2007. "Dual track reforms: With and without losers," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2291-2306, December. [Downloadable!] (restricted)
John Bennett & Huw Dixon & Helen X.Y. Hu, 2008. "The Effects of Reforming the Chinese Dual-Track Price System," CEDI Discussion Paper Series 08-14, Centre for Economic Development and Institutions(CEDI), Brunel University. [Downloadable!]

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