Dual Track Liberalization: With and Without Losers

Jiahua Che () and Giovanni Facchini

William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: The success of the Chinese economic reforms has been linked by many observers to the implementation of a dual track liberalization mechanism. This approach, relying upon the continued enforcement of existing contracts and the simultaneous creation of a free market sector, represents a powerful mechanism in economic reform. If not anticipated, it implements an outcome that is both Pareto improving and e?ciency enhancing as compared to the status quo. When the reform is instead anticipated, intertemporal arbitrage arises, potentially undermining these properties. Only when the original policy involves both price setting and quantity restrictions can anticipated dual track liberalization maintain its attractiveness. While these conditions correspond well to the circumstances faced by transition economies, our analysis invites some caution as for the further applicability of the Chinese approach to economic reform.

Keywords: Dual Track Liberalization; Intertemporal Arbitrage; Pareto Improving Reforms; China (search for similar items in EconPapers)
JEL-codes: F1 P2 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2004-03-01
New Economics Papers: this item is included in nep-dev
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Dual Track Liberalization: With and Without Losers (2004)
Working Paper: Dual Track Liberalization: With and without losers (2004)
Working Paper: Dual Track Liberalization: With and Without Losers (2004)
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