Urban Growth and Aggregate Growth in China

Using a spatial equilibrium model and data of 286 Chinese cities at the prefecture and above- prefecture level from 2002 to 2013, this study estimates the contribution of each of the selected Chinese cities to national GDP growth. The results in this study reveal several interesting patterns. First, what an individual city contributes to aggregate growth is not represented clearly by the city’s GDP based on standard accounting calculation. Despite some of the strongest growth occurring in cities such as Beijing, Tianjin, Shanghai and Chongqing, these cities were only responsible for a small fraction of China’s growth over the period covered. In fact, the analysis shows that it is growth in the cities in the west that has made the greatest contribution to the overall growth of China. Furthermore, the analysis of the results shows that the dispersion of the real wage across Chinese cities increased. This increased wage dispersion lowered aggregate Chinese GDP by 25.41 percent. This represents a loss, which is an effect of the tightening of regulatory constraints to housing supply in high productivity cities like Beijing, Tianjin, Harbin, Shanghai, Wuhan, Changsha, Chongqing, Chengdu, and Xian. Finally, a counterfactual scenario whereby these cities under regulatory constraints are reduced to the same level as the national mean level suggests that Chinese GDP would increase by 20.62 percent.