Chinese economist puts forward new system theory on development economics, transition economics
CAMBRIDGE, Britain, Nov. 1 (Xinhua) — Leading Chinese economist Justin Yifu Lin has put forward a new theoretical system relating to development economics and transition economics.
Lin, a professor of Beijing University, revealed the system during the Marshall Lectures Wednesday and Thursday at the Lady Mitchell Hall, Cambridge University. His lecture was titled “Development and Transition: Idea, Strategy and Viability.”
Lin is the first Chinese economist to speak at the Marshall Lectures. The world-renowned Marshall Lectures every year select well-known economists from around the world to participate in the event.
In his lecture, Lin puts forward his system, which is based on his personal observation and understanding of the reasons behind the successes and failures of development and transition in China and many other developing countries, although primarily on his experiences in China.
The Chinese economist emphasizes the importance of a correct strategy chosen by the government in a developing country in the process of economic development and transition, and puts forward the idea of a company’s viability as being a key part of his theory.
He takes the viability as the microcosmic basis of development economics and transition economics to make up the system of development economics and transition economics, and explains how the government in a developing country can play the right role in ensuring the success of economic development and transition.
“Since industrial and technological structures are endogenous to the endowment structure of the economy, the goal of a government’s development strategy should be to upgrade the endowment structure — instead of upgrading industry and technology directly without taking measures to upgrade their endowment structure first,” said Lin.
“Once the endowment structure is upgraded, relative factor prices will change and the profit motive and competition pressures will force enterprises to upgrade their industrial and technological structures spontaneously,” he said.
The professor referred to the set of policies that facilitates the development of industries and the adoption of technology in a developing country to follow the comparative advantage determined by its endowment structure at every phase of development as a comparative advantage-following (CAF) strategy.
“A developing country government that follows a CAF strategy needs to build up and maintain competitive market institutions so that the relative factor prices will reflect the changes in the relative abundance of factor endowments in the economy so as to guide the enterprises to make appropriate choices and upgrade industry and technology dynamically,” he said.
“On the other hand, the government needs to play an active role in collecting and disseminating technology and industry information plausibly in the form of industrial policy, in coordinating the enterprises’ investment, compensating for externalities, and in strengthening legal, financial and social institutions to facilitate the enterprises’ upgrading of industry and technology,” added Lin.
“If the developing country government plays the right roles, the country can benefit from the advantage of backwardness and is able to upgrade its endowment, industrial and technological structures more rapidly than a developed country. In the end the income level of this developing country will converge successfully with that of the developed countries,” the economist said.
Moreover, a country that follows a CAF strategy will be more outward-oriented than a country that follows a comparative advantage-defying (CAD) strategy. The CAF country will develop and export goods in which it has comparative advantage and import the goods in which it does not have comparative advantage, he said.
Lin summarizes, “Continuous technological upgrading is the most important driving force for a country’s long-tern dynamic growth in modern times. Ideas are the most vital determinants of whether a developing country will be able to achieve long-term dynamic growth. The government is the most important institution in a developing county. The endowments are the most important binding constraint on a country’s choice of technology and industry. Comparative advantage is the most important guiding principle not only for trade, but for economic development in a developing country. Viability is the most important concept for understanding the cause of various institutional distortions in developing countries. Pragmatism is the most important policy guidance for economic transition.”
The Chinese economist hoped the lecture will make a small contribution to the knowledge that helps developing and transitional countries jump from the kingdom of necessity to the kingdom of freedom in their pursuit of economic development and transition to a developed, wealthy market economy.
Now that within five months, Spock has grown significantly and ready for a much wider audience.
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