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

  • Zhang, Xiaobo
  • Tan, Kong-Yam

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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File URL: http://mpra.ub.uni-muenchen.de/6804/1/MPRA_paper_6804.pdf
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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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  1. Yang, Dennis T. & Hao Zhou, 1997. "Rural-Urban Disparity and Sectoral Labor Allocation in China," Working Papers 97-02, Duke University, Department of Economics.
  2. Chow, G.C., 1990. "Capital Formation And Economic Growth In China," Papers 67, Princeton, Woodrow Wilson School - Discussion Paper.
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  5. 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.
  6. Zhang, Xiaobo & Tan, Kong-Yam, 2004. "Blunt to sharpened razor," DSGD discussion papers 13, International Food Policy Research Institute (IFPRI).
  7. Sandra Poncet, 2003. "Domestic Market Fragmentation and Economic Growth in China (?)," ERSA conference papers ersa03p117, European Regional Science Association.
  8. Shenggen Fan & Xiaobo Zhang & Sherman Robinson, 2003. "Structural Change and Economic Growth in China," Review of Development Economics, Wiley Blackwell, vol. 7(3), pages 360-377, 08.
  9. Syrquin, Moshe, 1988. "Patterns of structural change," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 7, pages 203-273 Elsevier.
  10. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-25, April.
  11. Bai, Chong-En & Du, Yingjuan & Tao, Zhigang & Tong, Sarah Y., 2004. "Local protectionism and regional specialization: evidence from China's industries," Journal of International Economics, Elsevier, vol. 63(2), pages 397-417, July.
  12. Knight, John & Li, Shi, 2005. "Wages, firm profitability and labor market segmentation in urban China," China Economic Review, Elsevier, vol. 16(3), pages 205-228.
  13. X. Zhang & R. Kanbur, 2001. "What Difference Do Polarisation Measures Make? An Application to China," Journal of Development Studies, Taylor & Francis Journals, vol. 37(3), pages 85-98.
  14. Alwyn Young, 2000. "The Razor'S Edge: Distortions And Incremental Reform In The People'S Republic Of China," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1091-1135, November.
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  16. World Bank, 2005. "China : Integration of National Product and Factor Markets, Economic Benefits and Policy Recommendations," World Bank Other Operational Studies 8690, The World Bank.
  17. repec:cup:cbooks:9780521771269 is not listed on IDEAS
  18. Alwyn Young, 2000. "The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China," NBER Working Papers 7828, National Bureau of Economic Research, Inc.
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