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The Achilles' heels of growth: factor price distortion and consequential adverse wealth transfers in China

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  • Zhang, Shuguang
  • Cheng, Lian

Abstract

As critical piece of China’s gradualist economic transition, domestic price reform still faces major challenges. In particular, factor price, which is still tightly-controlled and not market-based, is lower than market equilibrium price. Factor price distortion not only reduces market efficiency but also affects wealth distribution. Subsequent wealth transfer has, over the past ten to fifteen years, created a powerful vested interests and spawned social resentment, both of which may constitute major hazards in China’s future reform and development. Keeping in mind that China will have to address factor price distortion in its next step of reform, this paper takes stock of China’s journey toward price reform; examines the relationship among factor price distortion, previous economic growth, and policy; and estimates the size of resulting wealth transfer.

Suggested Citation

  • Zhang, Shuguang & Cheng, Lian, 2010. "The Achilles' heels of growth: factor price distortion and consequential adverse wealth transfers in China," MPRA Paper 34710, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:34710
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    References listed on IDEAS

    as
    1. Qin, Duo & Cagas, Marie Anne & Ducanes, Geoffrey & He, Xinhua & Liu, Rui & Liu, Shiguo, 2009. "Effects of income inequality on China's economic growth," Journal of Policy Modeling, Elsevier, vol. 31(1), pages 69-86.
    2. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1208-1231, December.
    3. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
    4. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    factor price; economic growth; wealth transfer;
    All these keywords.

    JEL classification:

    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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