Constitutions and economic reforms in transition: an empirical study

Experiences of countries undergoing post-socialist transition in Central and Eastern Europe, as well as Central and Southwestern Asia, during the last 17 years, reveal great variety in economic reform paths and their successful implementation. At different moments of transition varying constitutional rules have also emerged in these countries. In our empirical study we find a significant relationship between constitutional rules and the economic reform process in post-socialist countries of Europe and Asia after 1989. In principle, the results confirm the arguments of the so-called negative constitutionalists, according to which the main function of the constitution for economic reforms in transition is its functioning as a commitment mechanism. The conclusions constitute an important step towards verification of different and often conflicting theories proposed by constitutional economists and allow to formulate practical recommendations for constitutional legislators and other actors capable of influencing constitutional change in countries encompassed by the study.

Growth and Transition: Why Has China''s Performance Been So Different?

This paper explains the differences in performance between the Central and Eastern European countries (CEECs) since 1989 and China since its 1978–1979 reforms by the differing goals of economic reformers in China and in the CEECs. In China reforms were intended to promote growth rather than to create a market-based economy. Eastern European reformers’ main goal has been the creation of a market-oriented economy. The paper focuses on policies toward foreign trade, foreign investment, and foreign exchange since these highlight the differences in goals.J. Comp. Econom.,December 1997,25(3), pp. 422–440. University of Adelaide, Adelaide, South Australia 5005, Australia.     

Temporal risk and the nature of induced preferences

It has been known since the work of H. Markowitz (“Portfolio Selection: Efficient Diversification of Investments,” Yale Univ. Press, 1959) and J. Mossin (Amer. Econ. Rev.59 (1969), 172–174) that even an individual whose underlying preferences satisfy the von Neumann-Morgenstern axioms will not choose over delayed (i.e., “temporal”) risky prospects in a manner which can be modelled as expected utility maximizing. Since most economically important instances of risk taking (insurance, real investment, agriculture, career training) involve delayed as opposed to immediately resolved risk, the standard use of expected utility theory to model such decisions must be questioned. In this paper the technique of “generalized expected utility analysis” (M. J. Machina, Econometrica50 (1982), 277–323) and the theory of support functions (R. T. Rockafellar, “Convex Analysis,” Princeton Univ. Press, 1970) are applied to exactly model and hence determine the nature of preferences over temporal risky prospects.     

国家基础设施投资与区域发展战略耦合——一项抵御国际金融危机冲击的经济增长策略

为应对1997年东南亚金融危机冲击,我国政府把西部地区作为基础设施投资重点,取得了加快西部地区发展,同时刺激全国经济持续增长的成功经验。这证明,国家基础设施投资与区域发展战略耦合是一项值得重视的抵御国际金融危机冲击的经济增长策略。当前,为抵御新的国际金融危机冲击,我国政府实施了大规模的基础设施投资计划。国家宜把中部地区作为这轮基础设施投资的重点区域,以收到加快中部地区崛起步伐、营造区域热点、刺激全国经济持续增长的效果。 ?     

From short-term to long-term orientation—political economy of the policy reform process

Despite the fact that policymakers often have a short-term horizon and prefer discretionary over rule-bound policy, one can observe policy reform with a focus on rules and long-term orientation. Sometimes reforms are driven by crisis, sometimes they are pursued in times of relative prosperity. The paper analyzes reform processes theoretically under the assumption of imperfect knowledge. After the introduction, the second section of the paper shows that rule-bound policy encourages a long-term orientation of policymakers, resulting in higher economic dynamics and growth as compared with discretionary policy. In the third section, the political economy of the reform process, i.e. replacing discretionary by more rule-bound policy, is analyzed in an evolutionary setting. The basic hypothesis is that a policy reform is triggered by three key factors: (1) a worsening economic situation, (2) increasing knowledge of policymakers and the public with respect to the effectiveness of policy paradigms and (3) external, in particular international support. In a fourth section, we present a case study. Finally, we draw conclusions.

中国与东南亚农业合作展望

中国与东南亚发展农业合作潜力巨大,中国与东南亚的农业合作已处于起步阶段,并取得了一定的成绩,但仍存在一些问题,中国与东南亚的农业合作有待于进一步发展,加强双边的农业合作可以通过加强制度合作,最大程度利用现有资源来进行.     

The Art of Reforming Centrally Planned Economies: Comparing China, Poland, and Russia

The three reasons for gradualism, (1) agricultural reform should precede industrial reforms, (2) state-owned enterprises (SOEs) can be reformed, and (3) economic liberalization should precede political liberalization, are not generalizable. China′s gradualism is the product of political deadlock over the final form of the economy. China has been most successful in the areas where reforms have been radical and lackluster where reforms have been incremental. The output performance across reforming countries reflected differences mainly in economic structures rather than in policies. China′s growth comes from the movement of surplus agricultural labor into industry, and Poland′s and Russia′s decline come from the closing of noncompetitive enterprises to release factors of production to the new efficient enterprises. J. Comp. Econom., June 1994, 18(3), pp. 000-000. University of California, Davis, California 95616-8617.     

Regulating coexistence in Europe: Beware of the domino-effect!

In the literature spatial coexistence of genetically modified (GM) and non-GM crops is often regarded as a technical challenge, depending on spatial pollen dispersal and cross-pollination, temporal and spatial distribution and interaction of crops, separation distances and practical measures, but the interaction between economic incentives and costs of coexistence is poorly studied. Europe is currently struggling to implement coherent coexistence regulations in all EU Member States. Since the publication of the European Commission's guidelines in 2003, some Member States have developed, and others are still developing, a diversity of ex ante regulations and ex post liability rules on the coexistence of GM and non-GM crops. In this article, our attention is drawn to ex ante regulations. More specifically, we polarize two alternative ways of regulating spatial coexistence, i.e. rigid minimum distance rules, imposed on GM crop production, versus flexible segregation measures such as buffer zones, leaving more freedom of negotiation between neighboring farmers. We conduct simulations with the software ArcView® on a GIS dataset of a hypothetical case of GM herbicide tolerant oilseed rape cultivation in Central France. Our findings show that rigid coexistence rules, such as large distance requirements, may impose a severe burden on GM crop production in Europe. These rules are not proportional to the farmers' basic economic incentives for coexistence and hence not consistent with the objectives of the European Commission. More alarming, we show that in densely planted areas a domino-effect may occur, a theoretical possibility ignored in the literature. This effect raises coexistence costs and even adds to the non-proportionality of rigid coexistence regulations. Instead, we show that flexible measures would be preferable since they are proportional to the economic incentives for coexistence and, hence, less counterproductive for European agriculture.     

Economic returns to schooling in urban China, 1988 to 2001

This study provides estimates of the returns to schooling in urban China over an extended period of economic reforms. We find a dramatic increase in the returns to education, from only 4.0 percent per year of schooling in 1988 to 10.2 percent in 2001. Most of the rise in the returns to education occurred after 1992 and reflected an increase in the wage premium for higher education. The rise is observed within groups defined by sex, work experience, region, and ownership, and is robust to the inclusion of different control variables. The timing and pattern of changing schooling returns suggest that they were influenced strongly by institutional reforms in the labor market that increased the demand for skilled labor. Journal of Comparative Economics 33 (4) (2005) 730–752.     

Economic Fluctuation,Macro Control,and Monetary Policy in the Transitional Chinese Economy

Since 1978, China has experienced four episodes of economic fluctuations, during which the government used macro controls to restore stability. This paper finds that (i) tight monetary policy reinforced by administrative actions checks the economic overheating, (ii) monetary policy affects significantly industrial output, retail sales, and prices, but it has no effect on fixed-asset investment and merchandise imports, (iii) a long-run stable relationship exists between financial variables and economic activity, and (vi) money aggregates outperform bank credits in predicting future changes in activities. The evidence provides ways for the People's Bank of China to improve the effectiveness of monetary policy.J. Comp. Econom.,October 1997,25(2), pp. 180–195. National University of Singapore, 10 Kent Ridge Crescent, Singapore 119260.     

Core allocations and the dimension of the cone of efficiency price vectors

Let (R₁,…,R_k) be an arbitrary partition of the grand coalition in an atomless exchange economy with k “large enough.” We prove that an optimal allocation x belongs to the core if and only if x cannot be improved upon by any coalition that includes at least one of the R_i's. K is “large enough” if k ? r + 1, where r is the linear dimension of the cone P of the efficiency price vectors for x. Recall that it is always true that r ? n, when n is the number of commodities in the market, and that under differentiability and interiority r = 1; thus k can be chosen to be 2 (i.e., for any coalition R, an allocation x belongs to the core of the market if and only if x is not blocked by any coalition that either contains R or contains its complement).     

Implementation,Elimination of Weakly Dominated Strategies and Evolutionary Dynamics

This paper studies convergence and stability properties of T. Sjöström's (1994, Games Econom. Behav.6, 502–511) mechanism, under the assumption that boundedly rational players find their way to equilibrium using monotonic evolutionary dynamics and best-reply dynamics. This mechanism implements most social choice functions in economic environments using as a solution concept one round of deletion of weakly dominated strategies and one round of deletion of strictly dominated strategies. However, there are other sets of Nash equilibria, whose payoffs may be very different from those desired by the social choice function. With monotonic dynamics, all these sets of equilibria contain limit points of the evolutionary dynamics. Furthermore, even if the dynamics converge to the “right” set of equilibria (i.e., the one which contains the solution of the mechanism), it may converge to an equilibrium which is worse in welfare terms. In contrast with this result, any interior solution of the best-reply dynamics converges to the equilibrium whose outcome the planner desires. Journal of Economic Literature Classification Numbers: C72, D70, D78.     

Fertility,income and welfare in an OLG model with regulated wages

We analyse the effects of the regulation of wages in a standard one-sector OLG model of neoclassical growth extended to account for endogenous fertility decisions of households and unemployment benefit policies financed at balanced budget. In contrast with the prevailing literature, which has failed to pay due attention to inter-temporal contexts, our conclusion is that minimum wages may be introduced not only for equity reasons, that is, to increase the income of low-paid workers, but under suitable conditions—i.e., if production is sufficiently capital oriented and the unemployment benefits are high enough—minimum wage legislation might be considered as a source of increased economic performance despite unemployment, i.e. a regulated-wage economy performs better than a market-wage economy. As a consequence, since higher minimum wages raise per capita income together with increasing unemployment, our results imply that a positive correlation between unemployment and long-run income per-capita may exist. Further, the lifetime welfare of the representative generation may be increased as well. Finally, the wage rate may also be treated as a policy instrument for the control of population growth.

Understanding china's economic performance

Broadly speaking, two schools of thought have emerged to interpret China's rapid growth since 1978: the experimentalist school and the convergence school. The experimentalist school attributes China's successes to the evolutionary, experimental, and incremental nature of China's reforms. Specifically, the resulting non-capitalist institutions are claimed to be successful in (a) agriculture where land is not owned by the fanners; (b) township and village enterprises (TVEs) which are owned collectively by rural communities; and (c) state owned enterprises (SOEs) where increased competition and increased wage incentive, but not privatization, have been emphasized.

The convergence school holds that China's successes are the consequences of its institutions being allowed to converge with those of non-socialist market economies, and that China's economic structure at the start of reforms is a major explanation for the rapid growth. China had a high population density heavily concentrated in low-wage agriculture, a condition that was favorable for labor-intensive export-led growth in other parts of East Asia. The convergence school also holds that China's gradualism results primarily from a lack of consensus over the proper course, with power still divided between market reformers and old-style socialists; and that the “innovative” non-capitalist institutions are responses to China's political circumstances and not to its economic circumstances.

Perhaps the best test of the two approaches is whether China's policy choices are in fact leading to institutions harmonized with normal market economies or to more distinctive innovations. In this regard, the recent policy trend has been towards institutional harmonization rather than institutional innovation, suggesting that the government accepts that the ingredients for a dynamic market economy are already well-known.     

Propping and tunneling

In countries with weak legal systems, there is a great deal of tunneling by the entrepreneurs who control publicly traded firms. However, under some conditions entrepreneurs prop up their firms, i.e., they use their private funds to benefit minority shareholders. We provide evidence and a model that explains propping. In particular, we suggest that issuing debt can credibly commit an entrepreneur to propping, even though creditors can never take possession of any underlying collateral. This helps to explain why emerging markets with weak institutions sometimes grow rapidly and why they are also subject to frequent economic and financial crises. Journal of Comparative Economics 31 (4) (2003) 732–750.     

Repositioning the Chinese economy on the global economic stage

A tectonic shift in the global economic prowess became obvious around the turn of the last century. Three decades of macroeconomic reforms, sustained growth and global integration have turned China into a future economic power of global magnitude, with unmatched breadth of resources and a robust manufacturing sector. Significance of the Chinese economy has radically increased and it has traversed from the periphery of the global economy to the core. For all appearances, this progress is likely to continue in the foreseeable future. China has grown to be the fourth largest economy in the world in a short time span and the third largest trader. Events like dawning of an economic superpower occur once in several generations. China is endeavoring to make a new niche for itself in the global economy as well as formulate a new role.

Finance and inequality: Channels and evidence

We provide a framework to interpret the recent literature on financial development and inequality. In many developing countries, access to funding and financial services by firms and households is still very skewed. Recent evidence suggests that poor access does not only reflect economic constraints but also barriers erected by insiders. Inequality affects the distribution of political influence, so financial regulation often is easily captured by established interests in unequal countries. Captured reforms deepen rather than broaden access, as small elites obtain most of the benefits while risks are socialized. Financial liberalization motivated to increase access may in practice increase fragility and inequality, and lead to political backlash against reforms. Thus financial reforms may succeed only if matched by a buildup in oversight institutions. Journal of Comparative Economics 35 (4) (2007) 748–773.     

Supportability and anonymous equity

W. W. Sharkey and L. G. Telser (J. Econom. Theory18 (1978), 23–37) feel that invulnerability of a natural monopoly to the threat of competitive entry is well reflected in the concept of supportability. G. R. Faulhaber and S. B. Levinson (Amer. Econom. Rev.71 (1981), 1083–1091) point out that supportability is necessary for the achievability of anonymous equity, i.e., absence of consumer subsidies in public enterprise pricing. This paper reconciles supportability with market clearance and shows that supportability is sufficient for the achievability of anonymous equity.     

Toward a naturalistic foundation of the social contract

This paper delivers a step toward a naturalistic foundation of the social contract. While mainstream social contract theory is based on an original position model that is defined in an aprioristic way, we endogenize its key elements, i.e., develop them out of the individuals’ moral common sense. Therefore, the biological and social bases of moral intuitions are explored. In this context, a key adaptation during evolution was the one that enabled humans to understand conspecifics as intentional agents. Since these behavioral aspects are considered to be an exaptation, they are not amenable to direct genetic explanations or to rationality-based approaches.

Efficient ecosystem services and naturalness in an ecological/economic model

In an integrated economic/ecological model, the economy benefits from ecosystem services that include: (1) the consumptive use of a harvested species, (2) the non-consumptive use of popular species, and (3) naturalness, i.e., the divergence of the ecosystem’s biodiversity from its natural steady state. The biological component of the model, which is applied to a nine-species Alaskan marine ecosystem, relies on individual optimizing behaviour by plants and animals to establish population dynamics. The biological component is used to define naturalness. By varying harvesting we arrive at different steady-state populations and humans choose from among these steady states. Welfare maximizing levels of the ecosystem services are derived, then it is shown that in the laissez-faire economy overharvesting occurs when the harvesting industry ignores ecosystem services (2) and (3). Lastly, we introduce efficiency restoring taxes and standards that internalize the ecosystem externalities.