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Chapter 1

ECON 336 Naughton - Chapter 1 and 2.docx

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Department
Economics (Arts)
Course
ECON 336
Professor
Christopher Green
Semester
Fall

Description
Chapter 1: Geographical Setting  China’s economic growth has been more robust in coastal provinces than in inland provinces.  Southern coastal regions are now both richer and faster growing than the rest of the county  Coast-inland gap: fundamental feature of the Chinese economy  1999: China launched the Western Development Program to give preference to western and inland provinces  Also a North-South gap in growth rates (south is growing much faster)  2003: Northeast Revitalization Program (to help North develop heavy industries in face of resource depletion, loss of customers and the need for downsizing)  Coastal region: dynamic center of the economy  Whereas between 1979-1999 it was the area that benefitted from preferential treatment, now it is the only area that doesn’t receive preferential policies  Each policy is different (tailored to area)  Effect of economic growth along the coast will likely diffuse to areas within the macroregion (41% of population lives in coast provinces)  Only 6% of population lives in the far west  China’s greatest development challenges: areas where a dense population pushed up against the limits of water and what the land can provide o Aihui-Tengchong line: slices through the middle of the country, dividing east and west o Belt of environmental degradation: deforestation, soil erosion and other environmental, social and economic problems  Geographical conditions and environmental challenges will shape China’s development potential Chapter 2: The Chinese Economy Before 1949  1949: dividing year in Chinese history in terms of economic growth  Traditional view: despite a few disastrous policies in the communist era, China’s economy has been growing rapidly since 1949  This view is challenged by Rawski, Brandt and etc., who claim that the traditional Chinese was well suited to support economic development. Economic development is a long-term process that requires accumulation of physical and human capital, as well as the evolution of institutions. This view suggests continuity between the features of the traditional economy and the rapid growth experience that becomes obvious after 1949. They argue that China would have grown regardless of the economic system in place -> Economic debate  The other side: 1949 is a turning point as a result of social and economic revolution (driven by factors such as pressure on living standards from population growth, absence of change in agricultural technology, pressure from class division, etc…). Revolution provided a way to solve some of these problems and unleashed rapid acceleration of economic growth. With a new set of social conditions, China was able to “takeoff” -> Historical debate The Traditional Economy  Over 90% rural population, largely in agriculture o Used a “traditional triad”: selected se varieties (early ripening rice), organic fertilizer (night soil, etc.), and irrigation -> highly productive o Possible through intense labour (high land productivity but low labour productivity) -> marginal product of labour even lower than average product o High land yield and intense utilization of resources o Incomes and consumption was low o Limited roles of animal in farm work and diet (all calories came from grain) o System supported a growing population for 400 years, while population quadrupled o 1/3 of global GDP in 1820  Thick network of markets in countryside o Regions tried together by highly developed water system o Major rivers link the food supply o Interregional trade for other commodities o Highly commercialized pre-modern economy with sophisticated institutions (use of money, formal organizations based on clan/lineage, use of contracts, legal and customary institutions, traditional banks), competitive markets (for coal, iron, textiles, land, labour, etc…. and social mobility) and a small scale bottom heavy economy (household and microenterprises based)  First success of globalizing: creating of the world tea market  Lack of standardization and consistency in quality pushed China out due to competition from Japan and India o Economy was fluid and flexible in allocation of resources  Labour and resources moved efficiently  Economic activity fragmented into small scale business with little capital  Crisis of the Traditional Economy o Severe limitations during the 19 century: population growth became burden on fixed resources o Hit high “level equilibrium trap” o Productive potential of traditional technologies were approaching exhaustion o Qing dynasty in decline: unable to provide main public goods o Rural population because vulnerable to breakdown of the rural infrastructure o Government incapable of mobilizing the funding or manpower needed to support the economy as the population grew and public infrastructure deteriorated o Social stresses fell on the poor o Income inequality was significant between imperial gentry and rural population o Substantial tenancy with high rent (45% of total output) by 1931-1936 o More than half of households carried debt o Hit the limits of economic possibility given traditional economies (environmental problems and lack of resources) o Government was unable to deal with both external and internal challenges (Taiping
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