Justin Yifu Lin and Peilin Liu
- Published in print:
- 2008
- Published Online:
- May 2008
- ISBN:
- 9780199535194
- eISBN:
- 9780191715730
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199535194.003.0004
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter argues that the regional income gap of China is endogenously determined by its long-term economic development strategy. The comparative advantage-defying (CAD) strategy, adopted by the ...
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This chapter argues that the regional income gap of China is endogenously determined by its long-term economic development strategy. The comparative advantage-defying (CAD) strategy, adopted by the Chinese government in the pre-reform era, encouraged firms to deviate from the economy's existing comparative advantages by prioritizing capital-intensive heavy industries. Under this strategy, many enterprises were not viable in competitive markets and required government support and protection. Consequently, the CAD strategy retarded the functions of market, impeded capital accumulation, and hindered technology and productivity progress in many provinces. In the post-reform period, provinces in central and western China continue to follow the CAD strategy and have poor growth records, while the coastal areas started to adopt the comparative advantage-following (CAF) strategy by facilitating firms' entry into an industry or choice of technology according to the economy's existing comparative advantages. This difference in development strategies represents the most fundamental cause of regional disparity in China. Therefore, it is imperative to replace the CAD strategy with a CAF strategy and restructure the existing industries in all provinces based on the principle of comparative advantage. This would lead to balanced development among regions and provinces.Less
This chapter argues that the regional income gap of China is endogenously determined by its long-term economic development strategy. The comparative advantage-defying (CAD) strategy, adopted by the Chinese government in the pre-reform era, encouraged firms to deviate from the economy's existing comparative advantages by prioritizing capital-intensive heavy industries. Under this strategy, many enterprises were not viable in competitive markets and required government support and protection. Consequently, the CAD strategy retarded the functions of market, impeded capital accumulation, and hindered technology and productivity progress in many provinces. In the post-reform period, provinces in central and western China continue to follow the CAD strategy and have poor growth records, while the coastal areas started to adopt the comparative advantage-following (CAF) strategy by facilitating firms' entry into an industry or choice of technology according to the economy's existing comparative advantages. This difference in development strategies represents the most fundamental cause of regional disparity in China. Therefore, it is imperative to replace the CAD strategy with a CAF strategy and restructure the existing industries in all provinces based on the principle of comparative advantage. This would lead to balanced development among regions and provinces.
