Economic Analysis Of The Dual Nature Of Local Government's Behavior In China's Transition

When reviewing and examining the development made during the procedure of economic system transition in the past 30 years, we find that there are outstanding achievements as well as problems. These achievements and problems are closely related to economic behaviors of local government. The local government has already become the endogenous variables of China's economic transition and growth, and according to its behavior of dual characteristic both thrust and obstruction come from the local government. However, what factor and mechanism is the behavior of local government in transition period influenced and determined by? What are the inherent law, external manifestation and behavior effect of the dual characteristic behavior of local government? How will the behavior mode of the local government be developed and evolved? At present, these basic problems have not got systematically study and answer yet. So this thesis try to construct a framework of economic theoretical analysis, and emphasize on the dual characteristic behavior of local government, with the help of institutional analysis, normative and empirical analysis, and comparative analysis methods, in order to answer questions above, and then offer a new view to understanding both Chinese economic transition and local government transformation.This thesis includes six chapters. Chapter one is the introduction. Chapter two makes a simple definition of the local government and its dual behavior. Chapter three analyses the dual characteristic behavior of local government and its effect. Chapter four concentrates on the reason why the dual characteristic behavior of local government comes out, which is the key and innovative part of the whole thesis. Chapter five proposes how the local government should make its reform and also some specific suggestion. Chapter six is conclusion.Particularly, chapter one is the introduction. At first, it explains the background of this thesis, the theoretical and realistic value of this research. Secondly, it summarize studies carried out by domestic and international scholars, especially on our country during transition period, and makes brief comments on these studies. Then, it introduces the author's approach towards the problems. Finally, it points out the innovation and deficiency of this thesis.Chapter two defines the local government under the background of transition, and answer the question of what the local government is in transition period. This thesis takes economic transition as a course of system changes, and local government, central government and other subjects as three main subjects. It defines the local government according to the relationship of interests among the three, and proposes that local government is a special subject in the course.Chapter three analyses the dual characteristic behavior of local government in detail, and its dual influence on the market-based reform in transition period, and answer the question how the dual characteristic behavior of local government will be during the transition period. When we turn back to look at the behavior of local government in the economic transition background, there are obvious dual characteristics in the behavior of local government: It has positive effect in market-based reform, as well as negative influence. In the process of cultivating the subject of the market, on one hand, it supports the development in private economy, such as township enterprise, individual and private business, three kinds of foreign-invested enterprises, etc. It advances the reform of privatization of the state-owned enterprise through delegating power. On the other hand, it intervenes in state-owned enterprise excessively, even internal management of the enterprise and its external trade fairs. Thus the growth of the market subject is delayed. In the aspect of promoting development of the market, on one hand, it helps individual area build up their own professional markets, and on the other hand, it implements the local protectionism policy, hindering forming of the national market. Its policy for widening investment not only promotes the economic growth in the local area, but also causes the whole national market to be overheated. Its policy for regulating the market, balances the supply and demand in the local market, but has negative influence on the entire economy. In a word, local government is the core force of economic transition as well as interest group hindering the transition. One thing that needs pointing out is that the dual characteristic behavior of local government is different at every stage during the transition period, related with stages of the market-based reform of our country. Before 1992, the reform is advanced in some special areas without influencing the existing departments. The achievements of local government are significant in the early period of transition. But after 1992, the negative effect of the behavior of local government becomes conspicuous day by day.Chapter four provides a theoretical analysis framework to answers the question why the behavior of local government in transition period has dual nature. The thesis draws lessons from Principal-Agent Theory, property right theory, inter-governmental competition theory and game theory to analyzing dual characteristic behavior of local government with following aspects: (1) Central government - Local government: Commission agent mainly related with the contracting in politics; (2) Local government - Micro subject: Ambiguous property rights mainly about dominating right; (3) Local government - Local government: Economic competition mainly related with promoting and gambling in politics.Chapter five puts forward the goal and suggestion for the transition of local government based on the theoretical framework on chapter four. It answers the question how should the behavior of local government in transition period be. First of all, in the aspect of transaction cost, it is found that the local government's intervention in the market on the initial stage of transition reduces the transaction cost and promotes the efficiency of the market. Later, the over involvement increases the transaction cost and has negative influenced on market efficiency. So, there should be an appropriate border for the behavior of local government in the economy. Local government should change its duty from market intervention to public service. Secondly, it draws lessons from the experience of western countries in late 30 year. At last, according to the theoretical framework put forward in chapter four, policy recommendations are proposed from three different points: Central - Locality, local government- micro subject, and local inter-governmental.Chapter six is the conclusion of the thesis. Above all, this thesis builds up a complete theoretical framework to analyze the coming out of the dual characteristic behavior of local government and its effect from the economic relationship among the central government, local government and other subjects under the background of Chinese transition. It provides a helpful point of view for the system reform and also some valuable suggestions for the local government.