The Economics of Price Scissors: An Empirical Investigation for China

Abstract

The Sah-Stiglitz "Economics of Price Scissors" model on the political economy of price scissors derives the optimal terms of trade against peasants. In the present paper, by extending this model to an open economy and allowing agricultural rationing, we first check if the model stands up to China's data and, if so, we estimate its key structural parameters. Using province-level panel data from 1949-1992, we find that the importance of peasants in China's governmental objective function is less than the importance of workers. In addition, the importance of consumption is also less than that of capital accumulation. Such findings are consistent the reality in China.

Keywords: China, Price Scissors, Trade, Political Economy

JEL Classification: F1, O1