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Socialist economic growth and political investment cycles

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  • Zou, Heng-fu

Abstract

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

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    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. 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.
    3. 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.
    4. Barry Ickes, 1986. "Cyclical fluctuations in centrally planned economies: A critique of the literature," Europe-Asia Studies, Taylor & Francis Journals, vol. 38(1), pages 36-52.
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    Citations

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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. Zou, Heng-fu, 1993. "A note on the Bauer-Kornai investment cycle theory," China Economic Review, Elsevier, vol. 4(1), pages 75-81.
    4. Salahodjaev, Raufhon & Azam, Sardor, 2015. "Intelligence and gender (in)equality: empirical evidence from developing countries," MPRA Paper 66295, University Library of Munich, Germany.
    5. John Knight & Sai Ding, 2010. "Why Does China Invest So Much?," Asian Economic Papers, MIT Press, vol. 9(3), pages 87-117, Fall.
    6. 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.
    7. 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.
    8. 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.
    9. Maria Csanádi & Ferenc Gyuris, 2020. "Uneven Economic Overheating in a Transforming Party-State During the Global Crisis: The Case of China," CERS-IE WORKING PAPERS 2036, Institute of Economics, Centre for Economic and Regional Studies.

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