IDEAS home Printed from https://ideas.repec.org/a/eee/chieco/v26y2013icp197-206.html
   My bibliography  Save this article

Does investment allocation affect the inter-regional output gap in China? A time-series investigation

Author

Listed:
  • Chen, Anping
  • Groenewold, Nicolaas

Abstract

Inter-regional disparities in China have been an important concern for central-government policy-makers for most of the past 60years. One of the main policy instruments for redressing the imbalance between the prosperous coastal region and the poorer inland region has been the allocation of investment spending. Yet there is little empirical work evaluating the response of disparities to changes in the regional distribution of investment. We help fill this gap and analyse the two-way relationship between these variables within a VAR/VECM framework. We find, surprisingly, that changes in the regional allocation of investment have only a modest beneficial effect on inter-regional output disparities while the effect in the opposite direction is much larger. We find this conclusion to be robust to numerous variations in variable definition. The effects of investment allocation on output disparities are larger, although, for the post-1978 period they are smaller for SOE investment.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:chieco:v:26:y:2013:i:c:p:197-206
    DOI: 10.1016/j.chieco.2012.03.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1043951X1200017X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.chieco.2012.03.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. 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.
    2. David Dollar & Shang-Jin Wei, 2007. "Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China," IMF Working Papers 2007/009, International Monetary Fund.
    3. 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.
    4. Fleisher, Belton & Li, Haizheng & Zhao, Min Qiang, 2010. "Human capital, economic growth, and regional inequality in China," Journal of Development Economics, Elsevier, vol. 92(2), pages 215-231, July.
    5. 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.
    6. Chen, Anping & Groenewold, Nicolaas, 2010. "Reducing regional disparities in China: An evaluation of alternative policies," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 189-198, June.
    7. Jin, Jing & Zou, Heng-fu, 2005. "Fiscal decentralization, revenue and expenditure assignments, and growth in China," Journal of Asian Economics, Elsevier, vol. 16(6), pages 1047-1064, December.
    8. Qin, Duo & Song, Haiyan, 2009. "Sources of investment inefficiency: The case of fixed-asset investment in China," Journal of Development Economics, Elsevier, vol. 90(1), pages 94-105, September.
    9. Chen, Anping, 2010. "Reducing China's regional disparities: Is there a growth cost?," China Economic Review, Elsevier, vol. 21(1), pages 2-13, March.
    10. Ravi Kanbur & Xiaobo Zhang, 2005. "Fifty Years of Regional Inequality in China: a Journey Through Central Planning, Reform, and Openness," Review of Development Economics, Wiley Blackwell, vol. 9(1), pages 87-106, February.
    11. Sylvie Démurger & Jeffrey D. Sachs & Wing Thye Woo & Shuming Bao & Gene Chang & Andrew Mellinger, 2002. "Geography, Economic Policy, and Regional Development in China," Asian Economic Papers, MIT Press, vol. 1(1), pages 146-197.
    12. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    13. Yang, Dennis Tao, 2002. "What has caused regional inequality in China?," China Economic Review, Elsevier, vol. 13(4), pages 331-334, December.
    14. Lu, Ding, 2002. "Rural-urban income disparity: impact of growth, allocative efficiency, and local growth welfare," China Economic Review, Elsevier, vol. 13(4), pages 419-429, December.
    15. LAU, Chi Keung Marco, 2010. "New evidence about regional income divergence in China," China Economic Review, Elsevier, vol. 21(2), pages 293-309, June.
    16. Rui Hao & Zheng Wei, 2010. "Fundamental causes of inland–coastal income inequality in post-reform China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 45(1), pages 181-206, August.
    17. Zhang, Yingqiang & Eriksson, Tor, 2010. "Inequality of opportunity and income inequality in nine Chinese provinces, 1989-2006," China Economic Review, Elsevier, vol. 21(4), pages 607-616, December.
    18. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 61-102.
    19. Gallup, John L. & Sachs, Jeffrey D. & Mellinger, Andrew, "undated". "Geography and Economic Development," Instructional Stata datasets for econometrics geodata, Boston College Department of Economics.
    20. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    21. Shang-Jin Wei & Ms. Genevieve Boyreau-Debray, 2004. "Can China Grow Faster? A Diagnosis of the Fragmentation of Its Domestic Capital Market," IMF Working Papers 2004/076, International Monetary Fund.
    22. Lai, Mingyong & Peng, Shuijun & BAO, Qun, 2006. "Technology spillovers, absorptive capacity and economic growth," China Economic Review, Elsevier, vol. 17(3), pages 300-320.
    23. Brun, J. F. & Combes, J. L. & Renard, M. F., 2002. "Are there spillover effects between coastal and noncoastal regions in China?," China Economic Review, Elsevier, vol. 13(2-3), pages 161-169.
    24. Zhang, Xiaobo, 2006. "Fiscal decentralization and political centralization in China: Implications for growth and inequality," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 713-726, December.
    25. Lin, Shuanglin, 2000. "Resource Allocation and Economic Growth in China," Economic Inquiry, Western Economic Association International, vol. 38(3), pages 515-526, July.
    26. Kailei Wei & Shujie Yao & Aying Liu, 2009. "Foreign Direct Investment and Regional Inequality in China," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 778-791, November.
    27. Cai, Fang & Wang, Meiyan, 2010. "Growth and structural changes in employment in transition China," Journal of Comparative Economics, Elsevier, vol. 38(1), pages 71-81, March.
    28. Zheng Wang & Zhaopan Ge, 2004. "Convergence and transition auspice of Chinese regional growth," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 38(4), pages 727-739, December.
    29. Yao, Shujie & Zhang, Zongyi, 2001. "On Regional Inequality and Diverging Clubs: A Case Study of Contemporary China," Journal of Comparative Economics, Elsevier, vol. 29(3), pages 466-484, September.
    30. Haishun Sun & Ashok Parikh, 2001. "Exports, Inward Foreign Direct Investment (FDI) and Regional Economic Growth in China," Regional Studies, Taylor & Francis Journals, vol. 35(3), pages 187-196.
    31. Bao, Shuming & Chang, Gene Hsin & Sachs, Jeffrey D. & Woo, Wing Thye, 2002. "Geographic factors and China's regional development under market reforms, 1978-1998," China Economic Review, Elsevier, vol. 13(1), pages 89-111.
    32. David Canning & Peter Pedroni, 2008. "Infrastructure, Long‐Run Economic Growth And Causality Tests For Cointegrated Panels," Manchester School, University of Manchester, vol. 76(5), pages 504-527, September.
    33. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    34. Yongling Yao, 2003. "The Impact Of Investment Policy On Regional Economic Patterns In China," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 8(3), pages 327-353.
    35. Barry Bosworth & Susan M. Collins, 2008. "Accounting for Growth: Comparing China and India," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 45-66, Winter.
    36. Shujie Yao, 2006. "On economic growth, FDI and exports in China," Applied Economics, Taylor & Francis Journals, vol. 38(3), pages 339-351.
    37. Alwyn Young, 2003. "Gold into Base Metals: Productivity Growth in the People's Republic of China during the Reform Period," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1220-1261, December.
    38. 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.
    39. Christopher Candelaria & Mary C. Daly & Galina Hale, 2009. "Beyond Kuznets: persistent regional inequality in China," Working Paper Series 2009-07, Federal Reserve Bank of San Francisco.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Meng, Ming & Pang, Tingting, 2022. "Operational efficiency analysis of China's electric power industry using a dynamic network slack-based measure model," Energy, Elsevier, vol. 251(C).
    2. Marei Elbadri & Eralp Bektaş, 2022. "Dynamic relationship among the bank stability, oil, and gold prices: Evidence from the Islamic banks operating in the Gulf Cooperation Council countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2153-2168, April.
    3. Tang, Ya & Xu, Jianguo & Zhang, Xun, 2017. "China's investment and rate of return on capital revisited," Journal of Asian Economics, Elsevier, vol. 49(C), pages 12-25.
    4. Anping Chen & Nicolaas Groenewold, 2013. "Regional Effects in China of an Emissions-Reduction Policy: Tax v. Subsidy," ERSA conference papers ersa13p1275, European Regional Science Association.
    5. Anping Chen & Nicolaas Groenewold, 2017. "An increase in the retirement age in China: the regional economic effects," Applied Economics, Taylor & Francis Journals, vol. 49(7), pages 702-721, February.
    6. Chen, Anping & Groenewold, Nicolaas, 2015. "Emission reduction policy: A regional economic analysis for China," Economic Modelling, Elsevier, vol. 51(C), pages 136-152.
    7. Partridge, Mark D. & Yang, Benjian & Chen, Anping, 2017. "Do Border Effects Alter Regional Development: Evidence from China," MPRA Paper 82080, University Library of Munich, Germany.
    8. Lemoine, Françoise & Poncet, Sandra & Ünal, Deniz, 2015. "Spatial rebalancing and industrial convergence in China," China Economic Review, Elsevier, vol. 34(C), pages 39-63.
    9. Anping Chen & Tianshi Dai & Mark D. Partridge, 2021. "Agglomeration and firm wage inequality: Evidence from China," Journal of Regional Science, Wiley Blackwell, vol. 61(2), pages 352-386, March.
    10. Yao, Xin & Zhou, Hongchen & Zhang, Aizhen & Li, Aijun, 2015. "Regional energy efficiency, carbon emission performance and technology gaps in China: A meta-frontier non-radial directional distance function analysis," Energy Policy, Elsevier, vol. 84(C), pages 142-154.
    11. Li, Qing & Wu, Yanrui, 2018. "Intangible capital in Chinese regional economies: Measurement and analysis," China Economic Review, Elsevier, vol. 51(C), pages 323-341.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    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. Wai Choi Lee & Tsun Se Cheong & Yanrui Wu & Jianxin Wu, 2019. "The Impacts of Financial Development, Urbanization, and Globalization on Income Inequality: A Regression-based Decomposition Approach," Asian Economic Papers, MIT Press, vol. 18(2), pages 126-141, Summer.
    3. Groenwold, Nicolaas & Lee, Guoping & Chen, Anping, 2008. "Inter-regional spillovers in China: The importance of common shocks and the definition of the regions," China Economic Review, Elsevier, vol. 19(1), pages 32-52, March.
    4. Nicolaas Groenewold & Guoping Lee & Anping Chen, 2006. "Inter-Regional Output Spillovers of Policy Shocks in China," Economics Discussion / Working Papers 06-26, The University of Western Australia, Department of Economics.
    5. Nicolaas Groenewold & Guoping Lee & Anping Chen, 2006. "Inter-Regional Output Spillovers in China: Disentangling National from Regional Shocks," Economics Discussion / Working Papers 06-25, The University of Western Australia, Department of Economics.
    6. Celine Bonnefond, 2014. "Growth Dynamics And Conditional Convergence Among Chinese Provinces: A Panel Data Investigation Using System Gmm Estimator," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 39(4), pages 1-25, December.
    7. Luintel, Kul B & Matthews, Kent & Minford, Lucy & Valentinyi, Akos & Wang, Baoshun, 2020. "The role of Provincial Government Spending Composition in growth and convergence in China," Economic Modelling, Elsevier, vol. 90(C), pages 117-134.
    8. Jing Li & Tsun Se Cheong & Jianfa Shen & Dahai Fu, 2019. "Urbanization And Rural–Urban Consumption Disparity: Evidence From China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(04), pages 983-996, September.
    9. Qinghua Zhang & Heng-fu Zou, 2012. "Regional Inequality in Contemporary China," Annals of Economics and Finance, Society for AEF, vol. 13(1), pages 113-137, May.
    10. Chen, Anping, 2010. "Reducing China's regional disparities: Is there a growth cost?," China Economic Review, Elsevier, vol. 21(1), pages 2-13, March.
    11. Rui Hao & Zheng Wei, 2010. "Fundamental causes of inland–coastal income inequality in post-reform China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 45(1), pages 181-206, August.
    12. Guangdong Li & Chuanglin Fang, 2014. "Analyzing the multi-mechanism of regional inequality in China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(1), pages 155-182, January.
    13. Chen, Ku-Hsieh & Huang, Yi-Ju & Yang, Chih-Hai, 2009. "Analysis of regional productivity growth in China: A generalized metafrontier MPI approach," China Economic Review, Elsevier, vol. 20(4), pages 777-792, December.
    14. Liu, Tung & Li, Kui-Wai, 2006. "Disparity in factor contributions between coastal and inner provinces in post-reform China," China Economic Review, Elsevier, vol. 17(4), pages 449-470.
    15. Kailei Wei & Shujie Yao & Aying Liu, 2007. "Foreign direct investment and regional inequality in China," Discussion Papers 07/32, University of Nottingham, GEP.
    16. Li, Kui-Wai & Liu, Tung, 2011. "Economic and productivity growth decomposition: An application to post-reform China," Economic Modelling, Elsevier, vol. 28(1), pages 366-373.
    17. Lili Kang & Fei Peng, 2018. "Economic Reform and Productivity Convergence in China," Arthaniti: Journal of Economic Theory and Practice, , vol. 17(1), pages 50-82, June.
    18. Wim Vijverberg & Feng-Cheng Fu & Chu-Ping Vijverberg, 2011. "Public infrastructure as a determinant of productive performance in China," Journal of Productivity Analysis, Springer, vol. 36(1), pages 91-111, August.
    19. Wu, Mingqin & Chen, Bin, 2016. "Assignment of provincial officials based on economic performance: Evidence from China," China Economic Review, Elsevier, vol. 38(C), pages 60-75.
    20. Fleisher, Belton & Li, Haizheng & Zhao, Min Qiang, 2010. "Human capital, economic growth, and regional inequality in China," Journal of Development Economics, Elsevier, vol. 92(2), pages 215-231, July.

    More about this item

    Keywords

    Regional disparities; Regional policy; China; Investment allocation;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:chieco:v:26:y:2013:i:c:p:197-206. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/chieco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.