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

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  • Zhang, Xiaobo
  • Tan, Kong-Yam

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6804.

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Date of creation: 2007
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Publication status: Published in World Bank Economic Review 21.2(2007): pp. 279-299
Handle: RePEc:pra:mprapa:6804

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Keywords: Market integration; China; rent seeking;

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  1. Zhang, Xiaobo, 2006. "Fiscal decentralization and political centralization in China: Implications for growth and inequality," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 713-726, December.
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  4. Zhang, Xiaobo & Tan, Kong-Yam, 2004. "Blunt to sharpened razor," DSGD discussion papers, International Food Policy Research Institute (IFPRI) 13, International Food Policy Research Institute (IFPRI).
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Citations

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Cited by:
  1. Fleisher, Belton & Hu, Dinghuan & McGuire, William & Zhang, Xiaobo, 2010. "The evolution of an industrial cluster in China," China Economic Review, Elsevier, Elsevier, vol. 21(3), pages 456-469, September.
  2. Loren Brandt & Trevor Tombe & Xiadong Zhu, 2013. "Factor Market Distortions Across Time, Space, and Sectors in China," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 39-58, January.
  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, Elsevier, vol. 20(2), pages 288-302, June.
  4. Long, Cheryl & Zhang, Xiaobo, 2009. "Cluster-based industrialization in China: Financing and performance," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 937, International Food Policy Research Institute (IFPRI).
  5. 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, International Food Policy Research Institute (IFPRI) 1045, International Food Policy Research Institute (IFPRI).
  6. Long, Cheryl & Zhang, Xiaobo, 2012. "Patterns of China's industrialization: Concentration, specialization, and clustering," China Economic Review, Elsevier, Elsevier, vol. 23(3), pages 593-612.
  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, International Food Policy Research Institute (IFPRI) 1040, International Food Policy Research Institute (IFPRI).
  9. Mukherjee, Anit & Zhang, Xiaobo, 2007. "Rural Industrialization in China and India: Role of Policies and Institutions," World Development, Elsevier, Elsevier, vol. 35(10), pages 1621-1634, October.
  10. 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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