The dynamics of reform and development in China: A political economy perspective

To make economic reforms acceptable, people in power need to be bought out. However, compensation is limited by the lack of commitment and liquidity. Under these constraints, development may begin with modest reforms in some areas or sectors where investment opportunities are large and expected benefits from the pre-reform system are small. Reform then may extend to other regions or sectors. If the propagation process generates enough savings and proper coordination of economic actors takes place, a drastic reform of institutions may then occur.