In this paper, we use comparative statics to test theoretically the way in which Mainland China has carried out its economic reform and to evaluate its achievements since 1979.
The paper is divided into six sections. In section one of the paper, we briefly review the relevant contributions to the literature, which have evaluated economic reform by using either a macro or a micro approach in the past. Furthermore, we discuss the suitability of these contributions, as well as their merits and shortcomings, as we apply them to evaluate the PRC’s economic reforms. In section two of the paper, we concisely describe the important economic reforms that have been adopted by the Chinese government since 1979. Moreover, we classify all the kinds of economic reform, which we have mentioned, into six items, that relate to the reform policy. In section three, we set up some assumptions and establish our theoretical model, which fits the Chinese economic environment. Then we use comparative statics to solve our hypotheses in section four. According to the classification in section two, we evaluate the various Chinese economic reforms item by item in section five. Besides, we resubdivide all the policy reforms into two groups, namely, the price system and the business management system. The former group, which is viewed as the macro-side analysis, includes three policies that deal with relaxing the rationing of the rationed goods, raising the prices of the rationed goods, and reducing the variety or the scope of the rationed goods. The latter group, which is viewed as the micro-side analysis, includes the other policies in section two, such as diversifying property rights, raising the quality of the standardized effort, and enlarging the discrepancy between the basic wage rate and the incentive wage rate. Finally, in section six, we offer a summary and conclusions.
In reforming the price system, we suggest that we would prefer to use the following two policies: raising the procurement price of the rationed goods and relaxing the amounts rationed, as we believe this combination can achieve both the goal of price stability and the goal of increasing the incentive to work of labor.
