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The razor's edge: distortions and incremental reform in the people's republic Of China

Young, Alwyn (2000) The razor's edge: distortions and incremental reform in the people's republic Of China. The Quarterly Journal of Economics, 115 (4). pp. 1091-1135. ISSN 0033-5533

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Abstract

In a partially reformed economy, distortions beget distortions. Segments of the economy that are freed from centralized control respond to the rent-seeking opportunities implicit in the remaining distortions of the economy. The battle to capture, and then protect, these rents leads to the creation of new distortions, even as the reform process tries to move forward. In this paper I illustrate this idea with a study of the People's Republic of China. Under the plan, prices were skewed so as to concentrate profits, and hence revenue, in industry. As control over factor allocations was loosened, local governments throughout the economy sought to capture these rents by developing high margin industries. Continued reform, and growing interregional competition between duplicative industries, threatened the profitability of these industrial structures, leading local governments to impose a variety of interregional barriers to trade. Thus, the reform process led to the fragmentation of the domestic market and the distortion of regional production away from patterns of comparative advantage.

Item Type: Article
Official URL: http://qje.oxfordjournals.org/
Additional Information: © 2000 Oxford University Press
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
Journal of Economic Literature Classification System: H - Public Economics > H0 - General > H00 - General
L - Industrial Organization > L5 - Regulation and Industrial Policy > L50 - General
Sets: Departments > Economics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 06 Apr 2011 10:23
URL: http://eprints.lse.ac.uk/33899/

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