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Toward a Unified Theory of Economic Reform

Author

Listed:
  • Huangnan Shen
  • Xiaojie Liu
  • Jun Zhang

    (Department of Economics, SOAS University of London, UK)

Abstract
The dichotomy in the economics of transition literature with regard to the reform speed (Gradualist vs Radical Approach) and reform strategy (incremental reform vs structural reform) fails to capture the essence of the transitional process of a transitional economy that was ever under the control of planned economic system. In this paper, we construct a system dynamics model to provide a unified theoretical framework to illustrate that reform speed and reform strategy are inherently intertwined. We propose 4 optimal reforming combinations between reform speed and reform strategy to track the transitional trajectories of different transitional economies since 1980s. These 4 optimal reforming combinations are: (1) Incremental reform in radical speed. (2) Incremental reform in gradualist speed. (3) Structural reform in radical speed. (4) Structural reform in gradualist speed. In this paper, we demonstrate that a transitional economy would adopt one of the aforementioned 4 optimal reforming combination if and only if it minimizes the reforming cost incurred during the shock period of radical reform as well as the dual track period of gradualist reforms. Several factors in our model affecting these 4 optimal reforming combinations are also discussed. These factors include the spillover effect (both vertical and horizontal) of a newly established reforming promotion sector on other old sectors in a transitional economy, the endogenous reform damping coefficient determined by one transitional economy‟s initial conditions and the reform damping coefficient determined by the dual track system during the gradualist reform process.

Suggested Citation

  • Huangnan Shen & Xiaojie Liu & Jun Zhang, 2017. "Toward a Unified Theory of Economic Reform," Working Papers 204, Department of Economics, SOAS University of London, UK.
    • Handle: RePEc:soa:wpaper:204
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    References listed on IDEAS

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    Cited by:

    1. Torsten Heinrich & Jangho Yang & Shuanping Dai, 2020. "Levels of structural change: An analysis of China's development push 1998-2014," Papers 2005.01882, arXiv.org, revised Sep 2020.
    2. Liu, Xiaojie & Shen, Jim Huangnan & Deng, Kent, 2022. "Endowment Structure, property rights and reforms of large state-owned enterprises (SOEs) in China: Past, present and future," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 675-692.

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    More about this item

    Keywords

    Reform speed; reform strategy; structural reform; spillover effect;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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