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Author

Liming Sun

Date of Award

11-1990

Degree Type

Thesis

Degree Name

Doctor of Philosophy (PhD)

Department

Economics / Economic Policy

Supervisor

F.T. Denton

Co-Supervisor

K.S. Chan

Committee Member

D.W. Butterfield

Abstract

The purpose of the study is to investigate the comparative dynamic properties of processes of transition from a centrally planned economy (CPE) to one with a substantial degree of market orientation. Alternative models of a CPE with Leontief technology are defined. The authorities in the CPE are assumed in these models to have full control over output or factor prices and to set the prices so as to optimize a social welfare function that takes into account both the benefits of reform and the social costs associated with changes from the old economy to the new one. In Chapter Two, we analyze a two-sector model with only one primary input, labour. The optimal time path of some control variable (the labour share in one of the sectors, for example) is monotonic and that the discount factor plays a crucial role in determining the curvature of the path. Comparative analysis indicate that, in most cases, a parameter change will produce an intuitively reasonable effect on the optimal trajectory. Chapter Three investigates a two-sector model with both labour and capital as primary inputs, while Chapter Five analyses a three-sector model with one labor and two types of capitals as primary inputs. Simulation experiments are carried out with these models using the MINOS nonlinear optimization program. The study reveals the following: (1) A lower population growth rate yields a higher steady-state level of consumption, and a higher initial capital stock gives higher consumption over time, which may justify family planning policy in a CPE, and the controlling of investment so as to effect a rapid accumulation of capital; (2) a change in a parameter has an employment and substitution effects. The overall effect depends on the signs and relative magnitudes of the two; (3) five-ten year planning period seems to be able to provide most of the benefit of the economic reform; (4) a greater penalty for structural change will smooth the time path of production of each sector; (5) attention should be paid to the objective function, since its specification does affect the results to certain extent. Chapter Four focuses on the stability of a three-sector Leontief model with portfolio conditions imposed. Unlike a neoclassical model, there is no saddlepoint instability problem in our model, since Leontief function introduces a friction from the supply side.

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