Abstract
This chapter contains a theoretical study of opening up, followed by empirical discussions of the unbalanced development of the Chinese regions. Applying an inframarginal methodology, we build a theoretical model based on the concepts of comparative advantage and transaction efficiency to explain opening up and inequality in developing economies. Our model and accompanying empirical evidence imply that an increase in domestic transaction efficiency reduces inequality within a developing economy while an increase in international transaction efficiency enhances the overall welfare level in a developing economy. These and other results have important implications for China in its policy making.
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Notes
- 1.
- 2.
See, for exa mple, earlier stu dies of Wei (1992), Zhang (2001), Dees (1998), Wei and Wu (2001), Wang and Gao (2003), Démurger (2000), Zhang (1999), Buckley et al. (2002), Démurger et al. (2002), Bao et al. (2002), DaCosta and Carroll (2001), Yao and Zhang (2001), Hu and Owen (2003), Zhang (2006), Madariaga and Poncet (2007), a s w ell as mo re re cent stu di es su ch a s Ouyang (2009) and Jiang (2011).
- 3.
- 4.
See Cheng et al. (2000) for the details of the mathematical derivations.
- 5.
\( {k}_0\equiv {\left[\left({a}_x/{a}_y\right)/\left({a}_x^{\ast }/{a}_y^{\ast}\right)\right]}^{1/2} \).
- 6.
\( {k}_a\equiv {\left[\left({a}_x{a}_y\right)/\left({a}_x^{\ast }{a}_y^{\ast}\right)\right]}^{1/2} \), k b ≡ (1 − α)L/(αL ∗), and \( {k}_1\equiv \left(1-\alpha \right)L{a}_y^{\ast }/\left(\alpha {L}^{\ast }{a}_y\right) \).
- 7.
\( {k}_2\equiv \alpha {L}^{\ast }{a}_x/\left[\left(1-\alpha \right)L{a}_x^{\ast}\right] \).
- 8.
If k a = k b happens to hold, then we have k 0 = k 1 = k 2. This simply implies that under the condition k a = k b , the two countries will either be in complete autarky or in complete specialization, depending on the value of the actual k: if 0 < k ≤ k 0 the two countries will remain in autarky; if k 0 ≤ k < 1, the two countries will engage in complete specialization according to their respective comparative advantage. M(iia) and M(iib) simply cannot be the general equilibrium structure under the condition k a = k b .
- 9.
Based on results above, it can be shown that in order for this to happen, we have to assume that k 1 < k < 1 if k a < (1 − α)L 1/(αL ∗) and k 2 < k < 1 if k a > (1 − α)L 1/(αL ∗).
- 10.
The detailed derivations are available from the author upon request.
- 11.
\( {\tau}_0\equiv {\left[\left(1-\alpha \right){a}_y^{\ast }{L}_1/ k\alpha {a}_y{L}^{\ast}\right]}^{1/2} \) and \( {\tau}_1\equiv \left\{{L}_2+\sqrt{L_2^2+4\alpha k{a}_y{L}^{\ast }{L}_1/\left[\left(1-\alpha \right){a}_y^{\ast}\right]}\right\}/\left\{2\alpha k{a}_y{L}^{\ast }/\left[\left(1-\alpha \right){a}_y^{\ast}\right]\right\} \).
- 12.
\( {\overline{\tau}}_0\equiv {\left[\left(1-\alpha \right){a}_y^{\ast }{L}_1/\overline{k}\alpha {a}_y{L}^{\ast}\right]}^{1/2} \) and \( {\overline{\tau}}_1\equiv \left\{{L}_2+\sqrt{L_2^2+4\alpha \overline{k}{a}_y{L}^{\ast }{L}_1/\left[\left(1-\alpha \right){a}_y^{\ast}\right]}\right\}/\left\{2\alpha \overline{k}{a}_y{L}^{\ast }/\left[\left(1-\alpha \right){a}_y^{\ast}\right]\right\} \).
- 13.
Relevant data are all available from the issues of the Chinese Statistical Yearbook.
- 14.
We should note that the regression model in (3.2) does not include a time-variant intercept, nor do we use other regression methods (such as the fixed effects estimator) to obtain the estimates. The reason is that the plain OLS regression we are using produces residuals that contain what we need in them.
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Jiang, Y. (2017). Opening Up and Unbalanced Development in the Chinese Regions: Theoretical Thinking and Some Empirical Evidence. In: Banik, A., Barai, M., Suzuki, Y. (eds) Towards A Common Future. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-10-5592-8_3
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