Samuel Zell and Robert Lurie Real Estate Center at Wharton Provincial Growth Differences in China 1984-1995: Income Disparity and Industrial Agglomeration

This paper presents results of econometric analyses on regional income disparity and industrial agglomeration in China. Using national time-series data and provincial panel data, cross-correlation analysis and fixed effect regressions are performed. In China, the increasing provincial income disparity and industrial agglomeration are simultaneously determined by other factors such as globalization force and economic liberalization process. Regressions on provincial growth rates of per capita GDP show that globalization has strong effects on regional development; FDI or export/GDP is significant in all regressions. Differences in the pace of economic reforms also contribute to the difference of the growth rates. TVEs are an especially dynamic part of the regional economic growth. Policy privileges, which were given to the coastal area in the early 1980s, are also responsible for the fast growth of the coastal area. Globalization is a driving force for the industries to agglomerate in the coast area. Provinces where SOEs have a higher share in the economy are suffering slow industrial growth. While there is a weak conditional convergence trend in the per capita income growth, there is an insignificant divergence trend in provincial industrial growth. Under a free-market economy, production agglomeration occurs naturally. As long as globalization and economic liberalization continue in China, production agglomeration toward the coastal area will continue. The recent development of Shanghai is one example. If the migration policy is kept as tight as before, a further increase in regional income disparity can be predicted.