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China's provincial disparities and the determinants of provincial inequality

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  • Thomas Gries
  • Margarethe Redlin

Abstract

The paper explains the growth-inequality nexus for China's provinces. The theoretical model of provincial development consists of two regions and studies the interactions of a mutually dependent development process. Owing to positive externalities, incoming trade and FDI induce imitation and hence productivity growth. The regional government can influence the economy by changing international transaction costs and providing a public infrastructure. Mobile domestic capital reinforces disparity effects. The implications of the theoretical model are tested. As the central intention of the paper is to explain provincial disparity, we directly relate income disparity (indicated by the contribution to the per capita income Theil index) to the disparity of selected income determining factors (indicated by the contribution to every other Theil index of the determinants). We examine the determinants of inequality for 28 Chinese provinces over the period 1991-2004 and apply a fixed effects panel estimation. The results confirm the theoretical framework and suggest a direct link between the factors that determine regional income and regional disparity. More specifically, it is apparent that disparities in trade, foreign and domestic capital and infrastructure have an impact on the provincial income Theil disparity, whereas provincial disparities in government expenditure and human capital do not seem to drive the income Theil disparity. Therefore, three decades of government reforms led to an extraordinary success of some provinces and increasing inequality. However, government expenditures and public human capital investments seemed to have a stabilizing effect on provincial disparity.

Suggested Citation

  • Thomas Gries & Margarethe Redlin, 2009. "China's provincial disparities and the determinants of provincial inequality," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 7(2), pages 259-281.
  • Handle: RePEc:taf:jocebs:v:7:y:2009:i:2:p:259-281
    DOI: 10.1080/14765280902847783
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    References listed on IDEAS

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    1. Spilimbergo, Antonio & Londono, Juan Luis & Szekely, Miguel, 1999. "Income distribution, factor endowments, and trade openness," Journal of Development Economics, Elsevier, vol. 59(1), pages 77-101, June.
    2. 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.
    3. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, vol. 113(487), pages 326-344, April.
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    Cited by:

    1. José Villaverde & Adolfo Maza, 2012. "Chinese per Capita Income Distribution, 1992–2007: A Regional Perspective," Asian Economic Journal, East Asian Economic Association, vol. 26(4), pages 313-331, December.

    More about this item

    Keywords

    regional development; FDI; international integration; China;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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