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You will prepare and submit a term paper on Why the Gap between City and Countryside Remain Stubbornly Large. Your paper should be a minimum of 2250 words in length.
You will prepare and submit a term paper on Why the Gap between City and Countryside Remain Stubbornly Large. Your paper should be a minimum of 2250 words in length. The Chinese economy is characterized by scarce capital. Planned allocation of resources in the agricultural sector has made way for “the maximum mobilization of resources for the development of the heavy industry” (Lin, Cai & Li, 1994, p. 13). This paper reflects upon the phenomenal gap that exists between the city and countrysides in China even after the benefits that have emerged after the Economic reforms.
The choice of growth was made in comparative advantage of defying fashion. China was mainly an agrarian economy with low income and scant reserves of capital. However, in spite of being scarce in capital, the development took place through the expansion of the heavy industry that was capital intensive. The country welcomed investments from foreign investors. The rate of industrialization in the country increased at a high rate and simultaneously, the concentration of population in the urban areas started to rise. In the period between the years of 1953 to 1985, more than twenty-five percent of the investment made by the state was devoted to the heavy industries. As a result, there was a huge increase in the contribution of the output of the heavy industries as a percentage of the GDP of China. However, a higher ratio of expenditure by the local governments to the local GDP leads to severe local protectionism (Perry & Wong, 1985, p. 207). Local protectionism acts as a form of barrier to trade (Bocchi, 2009, p. 285).
Although there has been significant growth of the economy, it has paid a high price for such an approach towards growth. Keeping aside the rate of growth, in terms of the comparative advantage and technical efficiency, the structure of production in the economy has become significantly inefficient.
Low efficiency of allocation of resources – In China capital is rather scarce in comparison to labor. If the market would have been allowed to determine the prices of the commodities, the prices of capital would have been much higher than the prices of labor. Therefore natural profit incentives would drive the entrepreneurs to adopt labor intensive technique of production. This would preserve the parity between the availability of resources and the utilization of resources thereby following a structure of production in compliance with the comparative advantage of the economy.
