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Regional Income Divergence in China

  • Peter Pedroni

    (Williams College)

  • James Yudong Yao

    (International Monetary Fund)

Numerous policy studies have argued that conditions have prevailed in China since the open door economic reforms of the late 1970s that have encouraged rapid growth at the expense of regional income inequality across the provinces of China. In this paper we use recently developed nonstationary panel techniques to provide empirical support for the fact that the long run tendency since the reforms has been for provincial level incomes to continue to diverge. More importantly, we show that this divergence cannot be attributed to the presence of separate, regional convergence clubs divided among common geographic subgroupings such as the coastal versus interior provinces. Furthermore, we also show that the divergence cannot be attributed to differences in the degree of preferential open-door policies. Rather, we find that the divergence is pervasive both nationally and within these various regional and political subgroupings. We argue that these results point to other causes for regional income divergence, and they also carry potentially important implications for other regions of the world.

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File URL: http://web.williams.edu/Economics/wp/pedronichina.pdf
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Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2005-03.

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Length: 39 pages
Date of creation: Aug 2005
Date of revision:
Publication status: published in Journal of Asian Economics, April 2006, v. 17, iss. 2, pp. 294-315.
Handle: RePEc:wil:wileco:2005-03
Contact details of provider: Postal: Williamstown, MA 01267
Phone: 413 597 2476
Fax: 413 597 4045
Web page: http://econ.williams.edu
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  1. Martin Raiser, 1998. "Subsidising inequality: Economic reforms, fiscal transfers and convergence across Chinese provinces," Journal of Development Studies, Taylor & Francis Journals, vol. 34(3), pages 1-26.
  2. Benjamin, Dwayne & Brandt, Loren & Giles, John, 2005. "The Evolution of Income Inequality in Rural China," Economic Development and Cultural Change, University of Chicago Press, vol. 53(4), pages 769-824, July.
  3. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
  4. Evans, Paul & Karras, Georgios, 1996. "Convergence revisited," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 249-265, April.
  5. Sylvie Demurger & Jeffrey D. Sachs & Wing Thye Woo & Shuming Bao & Gene Chang & Andrew Mellinger, 2002. "Geography, Economic Policy and Regional Development in China," Harvard Institute of Economic Research Working Papers 1950, Harvard - Institute of Economic Research.
  6. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  7. 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.
  8. Jian, Tianlun & Sachs, Jeffrey D. & Warner, Andrew M., 1996. "Trends in regional inequality in China," China Economic Review, Elsevier, vol. 7(1), pages 1-21.
  9. Evans, P, 1996. "Using Panel Data to Evaluate Growth Theories," ISER Discussion Paper 0397, Institute of Social and Economic Research, Osaka University.
  10. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  11. Alwyn Young, 2000. "The Razor'S Edge: Distortions And Incremental Reform In The People'S Republic Of China," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1091-1135, November.
  12. Alwyn Young, 2000. "The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China," NBER Working Papers 7828, National Bureau of Economic Research, Inc.
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