ECON 455 Lecture 18 Integration of markets- goods market

ECON 455 Lecture 18 Integration of markets- goods market -...

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1 1 Econ455: Economic Development in China Lecture 18: March 21 Integration of markets: goods market Sandra Poncet Lorch Hall, room 207 Email: sponcet@umich.edu Office Hours: 2 Introduction The issue of market integration in China « A flexible and integrated domestic market is vital for broadening the basis of China’s competitiveness and growth, and for structural adjustment in the Chinese economy. A flexible and integrated market for goods and services, along with flexible entry and exit of firms, allows more productive firms to expand and exploit economies of scale, facilitates diffusion of technology, and stimulates productivity improvements that enhance competitiveness of firms across the national economy. » World Bank 2005
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2 3 Introduction Significance of the issue: gains from trade integration -scale and scope economies: lower unit cost, productivity gains -reinforces Chinese product competitiveness -helps to attract market-seeking FDI -may promote diffusion effects: imitation, technologica spillovers Specific costs of domestic trade barriers (cf. international protection) *barrier to production reallocation according to comparative advantages -economies of scale and resources: promote efficiency against waste -reduction in price (gains for consumers) *encourages corruption (A. Krueger: rent seeking) *barriers to productivity gains and thus to economic growth 4 Introduction Fragmentation in a globalized context raises several problems -capacity to absorb macro shocks and address them with national policies (cf. criteria to form an Optimal Monetary Union) -barriers can be a source of complaints for international partners (WTO compliance) -put in question the national unity? Promotion of domestic economic integration put forward in the 3rd Plenum of the 16th Central Committee of the CP(2003) -deepening of the reforms -more balanced development -sustainability of the growth
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3 5 Introduction Examples of fragmentation Licenses, taxes, bans of outside producers Judiciary discrimination of «outsiders» Favored access to banks, subsidies and red tape in the distribution channel provide protection of “local” producers Long tradition of market fragmentation Inheritance of Mao: self-sufficiency: trade as a residual Protectionism surge in 2 stages during the reforms: -1987-89: «boom» sourcing of commodities
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ECON 455 Lecture 18 Integration of markets- goods market -...

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