The Regional Disparities of Economic Growth in China

The regional disparities of economic growth in China

Abstract: Although China has achieved significant economic growth since the economic reform and the open door policy in the late 1970s, the regional disparities is a serious problem in the continuous economic developments. In the current period of increasing provincial inequalities, two determinants have been discussed. They are unequal pace of the economic development policies and different natural, social and economic conditions between the coastal and inland areas. Based on the statistical data from China Statistical Yearbook 2010, the regional disparities are shown through twelve indicators. Using Tobit model, capital is the dominant determinant of the provincial differences and investment has an indirect impact on the regional disparities.

The regional disparities of economic growth in China

1. Introduction

      China has achieved magnificent economic growth since the reform and open door policy in the late 1970s. However, the fruits of this growth have not been fairly distributed across different regions in China.

      Given China’s size and geographical diversity, different provinces have played an important role in promoting the country’s economic developments. Most of China’s regional development policies are based on three zones which are east, central and west. A regional dimension has been a crucial component of China’s development policies. (Chen & Zheng, 2008) The open door policy and coastal development strategy in the 1980s and 1990s strongly favored the coastal areas and have significantly increased inter-regional inequality in China.

Provincial disparity is an important problem in the continuous economic developments in China. In the current period of increasing provincial inequality, two various determinants have been discussed. One is the unequal pace of the development strategies and policies in different regions from the central government. In the 1980s and mid-1990s, the central government implemented many institutional reforms by testing them first in a few selected coastal provinces and special economic areas. The main purpose of the approaches was to control the extent and speed of the economic opening and reduce the related political uncertainty and risks. However, these policies have led to long-term effects on the provincial disparities in China.

The other explanation for the regional disparities is the different conditions for

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Source: Chen, M., & Zheng, Y. (2008).

the economic developments between the coastal and inland provinces. For instance, the coastal areas have advantageous geographic conditions, convenient transportation, and well-constructed economic infrastructure compared to the inland areas.

If the regional disparities are only a result of the biased government policies and disadvantageous conditions, the issue of provincial inequality will be easy to solve through preferential policies to the low-income regions. As time passes, the policies in the undeveloped areas will help these regions gain magnificent economic improvements similar to the coastal provinces. However, the fact is inconsistent with the ideal plan. The significant geographic differences between the regions make it more difficult for these regions to attract investment and construction from large corporations. Demurger et al. (2002) investigated the relative importance of geographic conditions and government policy factors in determining the disparities of inter-regional economic growth in China from 1978 to 1998 and found that the role of government policies became weaker.