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

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  • Zhang, Xiaobo
  • Tan, Kong-Yam

Abstract

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.

Suggested Citation

  • Zhang, Xiaobo & Tan, Kong-Yam, 2007. "Incremental Reform and Distortions in China’s Product and Factor Markets," MPRA Paper 6804, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:6804
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    References listed on IDEAS

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    More about this item

    Keywords

    Market integration; China; rent seeking;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • P23 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Factor and Product Markets; Industry Studies; Population

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