Price Scissors and Economic Growth: The Role of Openness

The present paper examines how the reduction in the price scissors impacted economic development during the early stage of China's reform period (i.e. 19811998). It is found that an increase in agriculture's terms of trade had a significant complementary effect with exportation on China's economic growth. Moreover, our data supports the results of Sah and Stiglitz (1987), who suggest that a reduction in the price scissors is associated with a decrease in physical capital accumulation in an open economy.