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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 Centre for Economic Development and Institutions(CEDI), Brunel University in its series CEDI Discussion Paper Series with number 13-01.

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Length: 39 pages
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:edb:cedidp:13-01

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  1. Michael J. Artis & Jarko Fidrmuc & Johann Scharler, 2008. "The transmission of business cycles," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 16(3), pages 559-582, 07.
  2. Michael Artis & Toshihiro Okubo, 2008. "The Intranational Business Cycle: Evidence from Japan," Hi-Stat Discussion Paper Series d07-234, Institute of Economic Research, Hitotsubashi University.
  3. Belton Fleisher & Haizheng Li & Min Qiang Zhao, 2007. "Human Capital, Economic Growth, and Regional Inequality in China," William Davidson Institute Working Papers Series wp857, William Davidson Institute at the University of Michigan.
  4. Todd E. Clark & Eric van Wincoop, 1999. "Borders and business cycles," Research Working Paper 99-07, Federal Reserve Bank of Kansas City.
  5. Zsolt Darvas & Andrew K. Rose & György Szapáry, 2005. "Fiscal Divergence and Business Cycle Synchronization: Irresponsibility is Idiosyncratic," NBER Working Papers 11580, National Bureau of Economic Research, Inc.
  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. Li, Jia, 2012. "On the Empirics of China's Inter-regional Risk Sharing," MPRA Paper 37805, University Library of Munich, Germany.
  8. Ian Babetskii, 2005. "Trade integration and synchronization of shocks," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(1), pages 105-138, 01.
  9. Elena Jarocinska, 2008. "Are Intergovernmental Grants Tactical? The Evidence from Russia," CASE Network Studies and Analyses 0361, CASE-Center for Social and Economic Research.
  10. Poncet, Sandra & Barthélemy, Jean, 2008. "China as an Integrated Area?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 896-926.
  11. Fidrmuc, Jarko & Korhonen, Iikka, 2003. "Similarity of supply and demand shocks between the euro area and the CEECs," Economic Systems, Elsevier, vol. 27(3), pages 313-334, September.
  12. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
  13. Tang, K. K., 1998. "Economic Integration of the Chinese Provinces: A Business Cycle Approach," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 549-570.
  14. Xu, Xinpeng, 2002. "Have the Chinese provinces become integrated under reform?," China Economic Review, Elsevier, vol. 13(2-3), pages 116-133.
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