The Economics of Price Scissors: An Empirical Investigation for China.

Justin Yifu Lin, Miaojie Yu
Working Paper

The Sah-Stiglitz “Economics of Price Scissors’ model, concerning the political economy of price scissors, formulates 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 from 1949-1992, we find that the importance of peasants in the government’s objective function is less than the importance of workers. In addition, the importance of consumption is also less than that of investment. Such findings are consistent with the reality of China.