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

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

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.

Suggested Citation

  • Lau, Lawrence J & Qian, Yingyi & Roland, Gérard, 1998. "Reform Without Losers: An Interpretation of China's Dual-Track Approach to Transition," CEPR Discussion Papers 1798, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1798
    as

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    References listed on IDEAS

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    1. 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 130-143, Spring.
    2. 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.
    3. 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.
    4. Wei Li, 1999. "A Tale of Two Reforms," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 120-136, Spring.
    5. 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.
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    11. 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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    More about this item

    Keywords

    China; Dual-track price liberalization; Pareto-improving economic reforms; political restraints; Transition;

    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

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