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

  • Lau, Lawrence J
  • Qian, Yingyi
  • Roland, Gérard

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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  1. Yuanzheng Cao & Yingyi Qian & Barry R. Weingast, 1997. "From Federalism, Chinese Style, to Privatization, Chinese Style," Working Papers 97049, Stanford University, Department of Economics.
  2. 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.
  3. Wei Li, 1999. "A Tale of Two Reforms," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 120-136, Spring.
  4. 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.
  5. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," William Davidson Institute Working Papers Series 38, William Davidson Institute at the University of Michigan.
  6. McMillan, John & Naughton, Barry, 1992. "How to Reform a Planned Economy: Lessons from China," Oxford Review of Economic Policy, Oxford University Press, vol. 8(1), pages 130-43, Spring.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. Justin Yifu Lin, Fang Cai, and Zhou Li, 1996. "The Lessons of China's Transition to a Market Economy," Cato Journal, Cato Journal, Cato Institute, vol. 16(2), pages 201-231, Fall.
  13. Lin, Justin Yifu, 1992. "Rural Reforms and Agricultural Growth in China," American Economic Review, American Economic Association, vol. 82(1), pages 34-51, March.
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