Working Paper: CEPR ID: DP3447
Authors: Yingyi Qian
Abstract: China’s reform worked and produced some of the most impressive growth in the largest developing and transition economy in the world in the past twenty-two years. That China has managed to grow so rapidly despite the absence of many conventional institutions such as rule of law and secure private property rights is puzzling. To understand how reform works in a developing and transition economy that has great growth potential, it is not enough to study the conventional ‘best-practice institutions’ as a desirable goal. One should also study how feasible, imperfect institutions have evolved to complement the initial conditions and to function as stepping stones in the transition toward the goal. Underlying China’s reform is a serial of institutional changes concerning the market, firms, and the government in the novel form of ‘transitional institutions.’ These institutions succeed when they achieve two objectives at the same time: to improve economic efficiency by unleashing the standard forces of incentives and competition on the one hand, and to make the reform a win-win game and thus interest compatible for those in power on the other.
Keywords: China; Institution; Reform; Transition
JEL Codes: P20; P26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| institutional changes (O17) | China's growth (O44) |
| institutional changes (O17) | improved economic efficiency (D61) |
| institutional changes (O17) | political feasibility (D72) |
| dual-track approach (E63) | price liberalization (P22) |
| dual-track approach (E63) | avoidance of losers in reform (D72) |
| dual-track approach (E63) | local government interests aligned with economic growth (H70) |
| TVEs (O39) | economic growth (O49) |
| TVEs (O39) | more secure property rights (P14) |
| fiscal contracting system (H39) | local government support for economic development (H70) |