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The unbalanced growth hypothesis and the role of the state : the case of China’s state-owned enterprises

Authors Holz, Carsten A.
Issue Date 2007-05-17
Summary Albert Hirschman’s unbalanced growth hypothesis suggests that a developing economy invest in industries with high backward and forward linkages. A high degree of linkage means that the initial investment yields large profit opportunities in other industries. These profit opportunities are taken up by entrepreneurs, i.e., lead to investment in the backward and forward linked industries. The higher the degree of linkage of the industry in which the initial investment occurred, the faster the economy grows. China is different from the typical developing economy. Due to a history of planned (balanced) development under state ownership, China at the beginning of the reform period had in place a broad industrial base. The issue of unbalanced growth in China then is one of strategic withdrawal of the state from low-linkage sectors and the continued presence of the state in high-linkage sectors. The evidence suggests that while the degree of linkage plays an important role in generating economic growth in China, current province-specific withdrawal strategies for the state sector are unlikely to be beneficial to economic growth.
Language English
Format Preprint
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