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A market-oriented reform of China’s 2016 Temporary Purchase and Storage Policy (TPSP) is important for improving the price-forming mechanism of maize. Using monthly, province-level panel data and a dynamic spatial econometric model, this study distinguishes the heterogeneous spatial price transmissions of maize under officially supportive and market-oriented regimes. Our empirical results show that the spatial transmission of maize prices was remarkably distorted under the TPSP. Simultaneously, its market-oriented reform has greatly reduced regional price differences and generated a more flexible and much smoother spatial price transmission. The reform provides important insights for improving agricultural support regimes for other products in China.

We introduce non-homothetic preferences into an R&D based growth model to study how demand forces shape the impact of inequality on innovation and growth. Inequality affects the incentive to innovate via a price effect and a market size effect. When innovators have a large productivity advantage over traditional producers a higher extent of inequality tends to increase innovators’ prices and mark-ups. When this productivity gap is small, however, a redistribution from the rich to the poor increases market sizes and speeds up growth.

This paper explores endogenous institution formation under a catching-up strategy in developing countries. Since the catching-up strategy is normally against the compartive advantages of the developing countries, it can not be implemented through laissez-faire market mechanisms, and a government needs to establish non-market institutions to implement the strategy. In a simple two-sector model, the authors show that an institutional complex of price distortion, output control, and a directive allocation system is sufficient to implement the best allocation for the catching-up strategy. Furthermore, removing any of the three components will make it no longer implementable. The analysis also compares the best allocation and prices under the catching-up strategy with their counterparts under no distortions. The results of this paper provide important implications for understanding the institution formation in the developing countries that were pursuing a catching-up strategy after World War II.