CONTROL IN A DYNAMIC VILLAGE ECONOMY - THE REFORMS AND UNBALANCED DEVELOPMENT IN CHINA RURAL ECONOMY

A dynamic control framework is used to model the Chinese village econo my in order to explain the rural sector's unbalanced growth in the pos t reform period. Village leaders are assumed to maximize a multi-attri bute utility function by manipulating local policy instruments subject to the structural relationships in the economy. The model's parameter s are estimated econometrically using a data set from forty villages i n eastern China. The empirical results identify important linkages bet ween agriculture and rural industry in village economies. Unbalanced g rowth can partially be explained by the way economic incentives induce individuals in rural areas to move resources toward the rural industr ial sector and away from agriculture.