Sylvie Démurger: Through the example of the development strategy implemented by the Chinese government, Lu and Xiang discuss a broad development question—how to achieve a balanced inter-regional development while maintaining economic efficiency. As rightly recalled by the authors, increasing development gaps observed in China between coastal and inland areas suggest a degree of irreconcilability between economic efficiency and inter-regional balance. They argue that the main driver of the conflict in China is the persistence of strong institutional barriers that impede full labor mobility.
The authors make an interesting point in highlighting two main policy options to solve the strategic challenge on how to reconcile regional balancing and economic efficiency. The first option, which was favored by the Chinese government in the 2000s, is to increase money transfers to less-developed regions. The authors argue that though such transfers are useful in balancing growth, they may lead to a distorted, inefficient allocation...