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Whither China? Reform and Economic Integration among Chinese Regions

  • Jan Fidrmuc
  • Jarko Fidrmuc
  • Shuo Huang

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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2013/wp-cesifo-2013-04/cesifo1_wp4220.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4220.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4220
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  1. Michael Artis & Toshihiro Okubo, 2009. "The UK Intranational Trade Cycle," Discussion Paper Series 234, Research Institute for Economics & Business Administration, Kobe University.
  2. 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.
  3. Elena Jarocinska, 2010. "Intergovernmental grants in Russia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(2), pages 405-427, 04.
  4. Artis, Michael J & Okubo, Toshihiro, 2008. "The Intranational Business Cycle: Evidence from Japan," CEPR Discussion Papers 6686, C.E.P.R. Discussion Papers.
  5. Li, Jia, 2012. "On the Empirics of China's Inter-regional Risk Sharing," MPRA Paper 37805, University Library of Munich, Germany.
  6. Fidrmuc, Jarko & Korhonen, Iikka, 2001. "Similarity of supply and demand shocks between the Euro area and the CEECs," BOFIT Discussion Papers 14/2001, Bank of Finland, Institute for Economies in Transition.
  7. Zsolt Darvas & Andrew K. Rose & Gyorgy Szapary, 2005. "Fiscal Divergence and Business Cycle Synchronization: Irresponsibility is Idiosyncratic," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 261-298 National Bureau of Economic Research, Inc.
  8. Xu, Xinpeng, 2002. "Have the Chinese provinces become integrated under reform?," China Economic Review, Elsevier, vol. 13(2-3), pages 116-133.
  9. 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.
  10. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
  11. 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.
  12. Jarko Fidrmuc & Iikka Korhonen, 2006. "Meta-Analysis of the Business Cycle Correlation between the Euro Area and the CEECs," CESifo Working Paper Series 1693, CESifo Group Munich.
  13. 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.
  14. Todd E. Clark & Eric van Wincoop, 1999. "Borders and business cycles," Staff Reports 91, Federal Reserve Bank of New York.
  15. 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.
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