Please see the order instruction Essay Example | Topics and Well Written Essays - 500 words

Please see the order instruction - Essay Example Both China and Russia changed themselves from centrally planned economies to market-directed and China’s reforms started in the late 1970s whereas Russia saw such reforms only during the early 1990s. The pace and situation of the reforms were different in both the countries. Russia’s reforms were brought into effect comparatively at full tilt after the end of Communism. In China, market-oriented reforms took form gradually and were controlled by Communist government. Political constraints play a critical role in the development of economic reforms. For Chinese leaders, the reform strategies were a medium through which they could make changes and adjustments to their own political interests. However, if the interests are not protected, the parties would disagree with such reforms. According to political scientist Susan Shirk, political constraints lead to a compromise in decision making process among political parties. In order to solve the political constraint problem, China had started modest reform strategies in some areas and sectors where investment opportunities were huge and estimated profit from the pre-reform system was small. Soft budget constraint was introduced by Kornai. It is a main source of inefficiency. These inefficiencies, in order, tend to lead to inefficient resource allocation, over investment, shortages and macro economic imbalances. The SBC exists and creates problems in other financial systems. Kornai states that there are two kinds of explanations of SBC. They are exogenous and endogenous. â€Å"Explanations of the first type attribute the existence of the SBC to various exogenous reasons, including the paternalism of a socialist state and the governments aims for job creation or for gaining political support† (Lin & Tan 1999). The second type of explanation views the SBC as an endogenous phenomenon, which is