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A Tale of Two Reforms


  • Wei Li


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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    References listed on IDEAS

    1. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766, June.
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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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, De Gruyter Open, vol. 60(1), pages 182-201, July.
    6. Jan Svejnar, 2002. "Transition Economies: Performance and Challenges," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 3-28, Winter.
    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. Svejnar, Jan, 2007. "China in Light of the Performance of Central and East European Economies," IZA Discussion Papers 2791, Institute for the Study of Labor (IZA).
    9. Yingyi Qian, 1999. "The Institutional Foundations of China's Market Transition," Working Papers 99011, Stanford University, Department of Economics.
    10. 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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    JEL classification:

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


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