oriented development strategy from the experiences of the neighbouring predecessors (Asian NIES and ASEAN countries), and repeated similar measures to realize outward oriented growth which were already tried and proven effective by these predecessors. In other words, they could take advantage of the external economy of dynamic development in this region.

Unfortunately, Mongolia was physically remote from the spreading dynamism in East Asia, and it did not have sufficient size of overseas entrepreneurs, as China and Vietnam did. On the other hand, the close association with CMEA placed Mongolia in a highly distorted trade system and made it difficult for Mongolia to restructure its industrial structure in accordance with comparative advantage. Mongolia suffered from external diseconomy of CMEA seriously.

## 2 -3 Mode of Economic Reform

In spite of the importance of the initial conditions and international environment, it is not possible to entirely explain the superior macroeconomic performance of China and Vietnam by these two elements. There is another crucial determinants, that is the mode of economic reform. Although we observe various features of the reform attempts in these two countries, in our opinion, three aspects explained below are the most important:

## (1) Gradual Implementation

As we saw in 1-3, since the initial stage of reforms (still within the framework of centrally planned system), China and Vietnam spent long period before the beginning of full-scale transition toward market economies. Although these two economies might suffered from the piecemeal characteristics of reforms without clear blueprint, the careful and gradual changes of the rules of the games could avoid damage to the real sectors through giving enough time to adjust to the new situation. This presents a striking contrast to what happened in Mongolia as a result of sudden and fundamental changes of the rules. By the way, the case of Mongolia resembles the experience of Russia.

## (2) Agriculture First

In these countries the first effort of the reforms was made in the agricultural sectors. A “contract responsibility system” was introduced with the objective of restoring the family as the basic unit of production instead of “the Commune system of socialized agriculture”. At the same time, procurement prices of agricultural products were raised. The purpose of these measures was to give incentive to farmers, who were the majority group. The improved agricultural production $ ^{6} $ as a result of these efforts provided firmer basis for the following stages of reforms as both economies were basically agricultural economies. Particularly in China, capital accumulation in rural areas led to the evolution of township and villages enterprises which became an engine of the rapid growth afterwards.

If reforms were started simultaneously in all the sectors, agricultural sectors had to experience deterioration of terms of trade (this was what happened in the later stages in both economies), and there could be less stable real sectors.

## (3) Slow Progress of Privatization of State Enterprises

Perhaps state enterprise reform if the most difficult subject in transition to a market economy for many reasons including the lack of social safety net. Most transitional economies are faced with serious problems in this field. The feature of the reforms in China and