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Socialist economic growth and political investment cycles


  • Zou, Heng-fu


Socialist economic growth in China and Eastern Europe has long been characterized by investment hunger, drives toward expansion, and cyclical fluctuation of investment rates. For decades, relatively high growth rates - often accompanied by a shortage of consumption goods - have typically been achieved at the consumers'expense. Treating social planners as self-interested bureaucrats, the author offers a positive model to help understand the norms of socialist economic growth. This model demonstrates: (a) how rapid capital accumulation tends to serve the social planners'own interests; (b) why investment hunger is an inevitable consequence of social planners'rational choices; and (c) when a drive toward expansion can cause a permanent shortage of consumption goods. Through numerical examples and empirical tests, the author provides a framework within which to analyze political investment cycles in a socialist economy. In China, he finds that high investment rates have often been linked to leftist political regimes and low or moderate investment rates with rightist political regimes.

Suggested Citation

  • Zou, Heng-fu, 1991. "Socialist economic growth and political investment cycles," Policy Research Working Paper Series 615, The World Bank.
  • Handle: RePEc:wbk:wbrwps:615

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    References listed on IDEAS

    1. Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters,in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc.
    2. repec:taf:ceasxx:v:38:y:1986:i:1:p:36-52 is not listed on IDEAS
    3. Roland, Gerard, 1987. "Investment growth fluctuations in the Soviet Union: An econometric analysis," Journal of Comparative Economics, Elsevier, vol. 11(2), pages 192-206, June.
    4. Bajt, Alexander, 1971. "Investment Cycles in European Socialist Economies: A Review Article," Journal of Economic Literature, American Economic Association, vol. 9(1), pages 53-63, March.
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    Cited by:

    1. Peng, Fei & Kang, Lili & Jiang, Jun, 2011. "Selection and institutional shareholder activism in Chinese acquisitions," MPRA Paper 38701, University Library of Munich, Germany.
    2. Heng-Fu Zou, 1997. "Dynamic analysis in the Viner model of mercantilism," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 637-651, August.
    3. John Knight & Sai Ding, 2010. "Why Does China Invest So Much?," Asian Economic Papers, MIT Press, vol. 9(3), pages 87-117, Fall.
    4. Chang, Wen-ya & Hsieh, Yi-ni & Lai, Ching-chong, 2000. "Social status, inflation, and endogenous growth in a cash-in-advance economy," European Journal of Political Economy, Elsevier, vol. 16(3), pages 535-545, September.
    5. Ferrero, Mario, 1999. "Heavy investment and high pollution as rational choices under socialism," European Journal of Political Economy, Elsevier, vol. 15(2), pages 257-280, June.
    6. Zou, Heng-fu, 1993. "A note on the Bauer-Kornai investment cycle theory," China Economic Review, Elsevier, vol. 4(1), pages 75-81.
    7. Gong Guan & Heng-fu Zou, 2000. "Power Dynamics: Multiple Equilibria, Cyclical Fluctuations, and Local Stability in Intertemporal General Equilibrium Models," CEMA Working Papers 525, China Economics and Management Academy, Central University of Finance and Economics.
    8. Salahodjaev, Raufhon & Azam, Sardor, 2015. "Intelligence and gender (in)equality: empirical evidence from developing countries," MPRA Paper 66295, University Library of Munich, Germany.


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