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Inter-Regional Spillovers in China: The Importance of Common Shocks and the Definition of Regions

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  • Nicolaas Groenewold

    ()
    (Department of Economics, The University of Western Australia)

  • Guoping Lee

    (School of Economics and Finance, Xi'an Jiaotong University)

  • Anping Chen

    (School of Economics and Finance, Xi'an Jiaotong University)

Abstract

This paper examines the question of inter-regional spillovers in China. We argue that this is a central question in Chinese economic policy, given the marked regional disparities that exist and the concern of policy-makers to ameliorate them. We analyse this question within the framework of a six-region vectorautoregressive model which we subject to extensive sensitivity analysis, with particular attention paid to the effects on the results of strong common output movements. We find the results of dynamic simulations to be importantly dependent on model specification; in particular, they are sensitive to the order in which the variables enter the model. After an assessment of various alternatives, we are able to specify a model with tolerable robustness by using data which has been purged of the effects of national output fluctuations. We find some expected but also some unexpected results. In the first category, the Yellow River and Changjiang River regions are found to have spillover effects on other regions although they are more extensive for the former; the South Western region has no significant spillover effects on the rest of the country, consistently with the results of previous research. However, in contrast both to other research and to our expectations, shocks to the South Eastern region affect mainly the region itself with little spillover to the other regions. The same is true of the North East region while the North West region has extensive spillovers to other regions. We conclude that there is still much to be learned about the magnitude and timing of inter-regional spillovers before firm policy conclusions can be drawn.

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File URL: http://www.biz.uwa.edu.au/home/research/discussionworking_papers/economics/2005?f=148841
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Bibliographic Info

Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 05-19.

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Length: 35 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:uwa:wpaper:05-19

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  1. Yang, Dennis Tao, 2002. "What has caused regional inequality in China?," China Economic Review, Elsevier, vol. 13(4), pages 331-334, December.
  2. Brian A. Cromwell, 1992. "Does California drive the West? an econometric investigation of regional spillovers," Economic Review, Federal Reserve Bank of San Francisco, pages 13-23.
  3. Clark, Todd E, 1998. "Employment Fluctuations in U.S. Regions and Industries: The Roles of National, Region-Specific, and Industry-Specific Shocks," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 202-29, January.
  4. Xu, Xianchun, 2004. "China's gross domestic product estimation," China Economic Review, Elsevier, vol. 15(3), pages 302-322.
  5. Demurger, Sylvie, 2001. "Infrastructure Development and Economic Growth: An Explanation for Regional Disparities in China?," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 95-117, March.
  6. Gerald Carlino & Robert DeFina, 1993. "Regional income dynamics," Working Papers 93-1, Federal Reserve Bank of Philadelphia.
  7. Q. Zhang & B. Felmingham, 2002. "The Role of FDI, Exports and Spillover Effects in the Regional Development of China," Journal of Development Studies, Taylor & Francis Journals, vol. 38(4), pages 157-178.
  8. Fleisher, Belton M. & Chen, Jian, 1997. "The Coast-Noncoast Income Gap, Productivity, and Regional Economic Policy in China," Journal of Comparative Economics, Elsevier, vol. 25(2), pages 220-236, October.
  9. S. Yao & Z. Zhang, 2001. "Regional Growth in China Under Economic Reforms," Journal of Development Studies, Taylor & Francis Journals, vol. 38(2), pages 167-186.
  10. Ellen R. Rissman, 1999. "Regional employment growth and the business cycle," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 21-39.
  11. Chen, Jian & Fleisher, Belton M., 1996. "Regional Income Inequality and Economic Growth in China," Journal of Comparative Economics, Elsevier, vol. 22(2), pages 141-164, April.
  12. Cai, Fang & Wang, Dewen & Du, Yang, 2002. "Regional disparity and economic growth in China: The impact of labor market distortions," China Economic Review, Elsevier, vol. 13(2-3), pages 197-212.
  13. Chang, Gene H., 2002. "The cause and cure of China's widening income disparity," China Economic Review, Elsevier, vol. 13(4), pages 335-340, December.
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