China’s WTO Accession and Regional Economies

Along with the rapid economic growth since China undertook economic reform in 1978, the income gap among Chinese regions has widened. Using CERD, a computable general equilibrium model of the Chinese economy with regional details, this paper investigates the impact of China’s accession to the World Trade Organisation on regional development and finds that, although all regions will gain from the accession, the trend of a widening gap among regions will be reinforced rather than eased. Specifically, the eastern coastal region gains more than the inland regions. The result is robust no matter whether the change in trade balance is left free or fixed, although the scenario with zero change in the trade balance generates a lower overall welfare gain and an even worse regional disparity. A retreat from WTO commitments in tariff cuts in agriculture reduces welfare gains, but could to some degree ameliorate the worsening inequality between rural and urban households and between coastal and inland regions. However, this analysis incorporates only WTO commitments on tariff cuts and does not include commitments on non-tariff barriers. Moreover, it does not model other domestic reforms that may be adopted to offset the adjustment costs of the WTO commitments.