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Reducing Regional Disparities in China: An Evaluation of Alternative Policies

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Author Info

  • Anping Chen

    (School of Economics, Jinan University)

  • Nicolaas Groenewold

    (UWA Business School, The University of Western Australia)

Abstract

Regional disparities in output per capita and income in China are large and persistent. They have been the subject of considerable concern to policy-makers at the highest level for decades, yet little is known about the effectiveness of various alternative policies which may be used to combat them. In this paper we address this issue by analysing the effectiveness of a range of policies by both regional and central governments. We use a small model with various features of the Chinese economy: two regions (the interior and the coast), two industries (agriculture and manufacturing), inter-regional capital mobility, internal migration subject to the hukou system of household registration and some features of the Chinese tax and expenditure system. The model is calibrated to Chinese data and simulated to analyse the effects of a number of policies on a range of variables but focussing on per capita output disparities and welfare. We find that a policy reducing internal migration costs is effective in reducing the per capita output gap but does so at a substantial cost to the coast. Policies which improve agricultural productivity in the interior region are most likely to both reduce the gap and make both regions better off. Changes in government consumption expenditure, central government fiscal redistributions and tax cuts, on the other hand, are less effective and have their long-run effectiveness reduced by migration.

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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 09-06.

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Length: 65 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:uwa:wpaper:09-06

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Keywords: regional disparities; China; numerical modelling; hukou;

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References

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  1. Woodland, Alan D. & Yoshida, Chisato, 2006. "Risk preference, immigration policy and illegal immigration," Journal of Development Economics, Elsevier, vol. 81(2), pages 500-513, December.
  2. Tao Zhang & Heng-fu Zou, 1996. "Fiscal decentralization, public spending, and economic growth in China," Policy Research Working Paper Series 1608, The World Bank.
  3. Whalley, John & Zhang, Shunming, 2007. "A numerical simulation analysis of (Hukou) labour mobility restrictions in China," Journal of Development Economics, Elsevier, vol. 83(2), pages 392-410, July.
  4. Jing Jin & Heng-fu Zou, 2004. "Fiscal decentralization, revenue and expenditure assignments, and growth in China," CEMA Working Papers 169, China Economics and Management Academy, Central University of Finance and Economics.
  5. Zhai, Fan & Hertel, Thomas & Wang, Zhi, 2003. "Labor Market Distortions, Rural-Urban Inequality and the Opening of China’s Economy," GTAP Working Papers 1323, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  6. 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.
  7. Chunli Shen & Jing Jin & Heng-fu Zou, 2006. "Fiscal Decentralization in China: History, Impact, Challenges and Next Steps," CEMA Working Papers 273, China Economics and Management Academy, Central University of Finance and Economics.
  8. Liu, Zhiqiang, 2005. "Institution and inequality: the hukou system in China," Journal of Comparative Economics, Elsevier, vol. 33(1), pages 133-157, March.
  9. 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.
  10. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-33, November.
  11. Zhang, Xiaobo, 2006. "Fiscal Decentralization and Political Centralization in China: Implications for Growth and Inequality," Working Paper Series RP2006/93, World Institute for Development Economic Research (UNU-WIDER).
  12. Poncet, Sandra, 2006. "Provincial migration dynamics in China: Borders, costs and economic motivations," Regional Science and Urban Economics, Elsevier, vol. 36(3), pages 385-398, May.
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Citations

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Cited by:
  1. Tsun Se Cheong & Yanrui Wu, 2013. "Globalization and Regional Inequality," Economics Discussion / Working Papers 13-10, The University of Western Australia, Department of Economics.
  2. Chen, Anping & Groenewold, Nicolaas, 2013. "Does investment allocation affect the inter-regional output gap in China? A time-series investigation," China Economic Review, Elsevier, vol. 26(C), pages 197-206.
  3. Siqi Zheng & Cong Sun & Ye Qi & Matthew E. Kahn, 2013. "The Evolving Geography of China’s Industrial Production: Implications for Pollution Dynamics and Urban Quality of Life," NBER Working Papers 19624, National Bureau of Economic Research, Inc.

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