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Whither China? Reform and Economic Integration among Chinese Regions

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  • Jan Fidrmuc
  • Jarko Fidrmuc
  • Shuo Huang

Abstract

This paper investigates the changing nature of economic integration in China. Specifically, we consider business-cycle synchronization (correlation of demand and supply shocks) among Chinese provinces during the period 1955-2007. We find that the symmetry of supply shocks has declined after the liberalization initiated in 1978. In contrast, the correlation of demand shocks has increased during the same period. We then seek to explain these correlations by relating them to factors that proxy for interprovincial trade and vulnerability of regions to idiosyncratic shocks. Interprovincial trade and similarity in factor endowments tend to make shocks more symmetric. Surprisingly, foreign trade and inward FDI have little effect on the symmetry of shocks.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4220.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4220

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Keywords: VAR model; business cycle synchronization; China; reform;

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  1. Xu, Xinpeng, 2002. "Have the Chinese provinces become integrated under reform?," China Economic Review, Elsevier, Elsevier, vol. 13(2-3), pages 116-133.
  2. Tang, K. K., 1998. "Economic Integration of the Chinese Provinces: A Business Cycle Approach," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 13, pages 549-570.
  3. Belton Fleisher & Haizheng Li & Min-Qiang Zhao, 2009. "Human Capital, Economic Growth, and Regional Inequality in China," Working Papers, Ohio State University, Department of Economics 09-01, Ohio State University, Department of Economics.
  4. Zsolt Darvas & Andrew K. Rose & Gyorgy Szapary, 2005. "Fiscal Divergence and Business Cycle Synchronization: Irresponsibility is Idiosyncratic," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 261-298 National Bureau of Economic Research, Inc.
  5. Todd E. Clark & Eric van Wincoop, 1999. "Borders and business cycles," Staff Reports, Federal Reserve Bank of New York 91, Federal Reserve Bank of New York.
  6. Fidrmuc, Jarko & Korhonen, Iikka, 2006. "Meta-analysis of the business cycle correlation between the euro area and the CEECs," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 518-537, September.
  7. Fidrmuc, Jarko & Korhonen, Iikka, 2003. "Similarity of supply and demand shocks between the euro area and the CEECs," Economic Systems, Elsevier, Elsevier, vol. 27(3), pages 313-334, September.
  8. Elena Jarocinska, 2008. "Are Intergovernmental Grants Tactical? The Evidence from Russia," CASE Network Studies and Analyses, CASE-Center for Social and Economic Research 0361, CASE-Center for Social and Economic Research.
  9. Michael J. Artis & Jarko Fidrmuc & Johann Scharler, 2008. "The transmission of business cycles," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 16(3), pages 559-582, 07.
  10. Ian Babetskii, 2005. "Trade integration and synchronization of shocks," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 13(1), pages 105-138, 01.
  11. Michael Artis & Toshihiro Okubo, 2008. "The Intranational Business Cycle: Evidence from Japan," Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University d07-234, Institute of Economic Research, Hitotsubashi University.
  12. Poncet, Sandra & Barthélemy, Jean, 2008. "China as an Integrated Area?," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 23, pages 896-926.
  13. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(4), pages 1127-70, November.
  14. Li, Jia, 2012. "On the Empirics of China's Inter-regional Risk Sharing," MPRA Paper 37805, University Library of Munich, Germany.
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