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Dual Track Reforms: With and Without Losers

Author

Listed:
  • Jiahua Che

    (Hong Kong University of Science Technology and William Davidson Institute)

  • Giovanni Facchini

    (University of Illinois and University of Milan)

Abstract

The dual track approach to market liberalization has been widely recognized as the key to the success of the Chinese economic reform. In this paper we study the effectiveness of this strategy in economic environments where the status quo government control is incomplete. We show that in a dynamic context intertemporal arbitrage will emerge, potentially resulting in efficiency losses and/or adverse distributional effects. Only when the status quo involves both price and quantity interventions by the government can dual track liberalization maintain its appeal. Our analysis thus suggests some caution as for the broader applicability of this reform mechanism.

Suggested Citation

  • Jiahua Che & Giovanni Facchini, 2005. "Dual Track Reforms: With and Without Losers," Development Working Papers 204, Centro Studi Luca d'Agliano, University of Milano.
    • Handle: RePEc:csl:devewp:204
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    File URL: https://www.dagliano.unimi.it/media/WP2005_204.pdf
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    References listed on IDEAS

    as
    1. Jiahua Che & Giovanni Facchini, 2004. "Dual Track Liberalization: With and Without Losers," William Davidson Institute Working Papers Series 2004-669, William Davidson Institute at the University of Michigan.
    2. Lawrence J. Lau & Yingyi Qian & Gerard Roland, 2000. "Reform without Losers: An Interpretation of China's Dual-Track Approach to Transition," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 120-143, February.
    3. Lau, Lawrence J. & Qian, Yingyi & Roland, Gerard, 1997. "Pareto-improving economic reforms through dual-track liberalization," Economics Letters, Elsevier, vol. 55(2), pages 285-292, August.
    4. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1992. "The Transition to a Market Economy: Pitfalls of Partial Reform," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 889-906.
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    Cited by:

    1. Chenggang Xu, 2011. "The Fundamental Institutions of China's Reforms and Development," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 1076-1151, December.
    2. Hammond, Peter J, 2018. "Allocation Mechanisms, Incentives, and Endemic Institutional Externalities," CRETA Online Discussion Paper Series 42, Centre for Research in Economic Theory and its Applications CRETA.

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    More about this item

    Keywords

    Dual Track Liberalization; Intertemporal Arbitrage; Pareto Improving Reforms; China;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies
    • F1 - International Economics - - Trade

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