Boundary Effects, Inter-regional Trade And Regional Economic Growth

Many countries used to be bothered by or are still facing the problem of imbalance in regional economic development. China's economic development has long been in a state of imbalance, which not only affects the stability of society, but also restricts the long-term sustainable and stable economic development of the country. Since 1990s, scholars and decision-making organs began to pay attention to this problem. Scholars have come up with a number of suggestions, and the government has taken various measures. To sum up, such suggestions and measures can be divided into no more than two categories: First, increasing investment to improve the infrastructure of the relatively under-developed regions and to strengthen the support of poverty alleviation for those relatively backward regions; second, giving some preferential policies to those relatively under-developed areas and encouraging them to explore development paths suitable to their own situation. Those measures and policies have made some differences, but the reality is still far from satisfactory.Although economists have long been aware of the truth that trade can promote the growth of wealth and enhance national welfare, there have been few papers which analyze economic growth especially the problem of coordinated regional economic development in a perspective of trade. Why economists have not paid attention to the importance of trade in regional economic development? There are mainly two reasons: on the one hand, in the framework of mainstream economics - perfect competition and constant returns to scale (or decrease), international trade in many circumstances is a zero-sum game, which usually leads to trade wars among nations. Though many economists have been advocating free trade, there are numerous trade wars in reality; on the other hand, the traditional mainstream economics has not been able to add the spatial or locational factors into analysis, which makes it difficult for mainstream economists to analyze the issues of a country's inter-regional economic growth through a trade perspective. In the early 1990s, P. Krugman analyzed the locations of regional economic activities in the framework of increasing scale returns and monopolistic competition, put spatial elements into the framework of competitive balance, and studied the laws and mechanisms of various products trade and the movement of production factors. Through this analysis, he explored ways and laws of economic growth, founded the New Economic Geography, and provided new ideas and research methods for people to recognize and analyze regional economic issues.The analytical framework of monopolistic competition and increasing scale returns can put spatial factors into analysis and explore the inter-regional trade and regional economic growth of a country. This dissertation adopts the above analytical framework, combines theoretical analysis and empirical testing, analyzes and discusses the problem of regional economic growth in China. It can be divided into four parts. The first part is to introduce the background and significance of the topic, the research subject, research methods and summary of relevant theories. The second part is mainly about theoretical analysis, exploring the inter-regional trade under the internal scale economy, trade and trade development under both internal and external scale economies, trade policy and the coordinated regional economic development, analyzing the operating spatial mechanisms of trade and capital flows, revealing the basic ways of inter-regional trade to promote regional economic growth. The third part is the empirical test through the analysis of statistical data, studying the relationship among border effect, freeness of trade, trade size and regional coordinated development. Part Four is based mainly on previous theoretical and empirical analysis, pointing out the economic meaning behind the model, giving some policy suggestions about regional trade and development.Through both theoretical and empirical analysis, this paper has come to the following basic conclusions. First, by expanding market size, inter-regional trade can promote the increase of the types of products, so as to enhance a faster growth of the regional economy. Second, in circumstances that products, services trade and factors flow mainly depend on market regulation, if there is no effective and strong government intervention, it is hard to change the already existing core - periphery structure (that is, the problem of regional economic imbalance in reality). And that is also the reason why our government has not come to satisfactory policies and measures to achieve coordinated regional development so far. Third, in addition to the industrial structures and market sizes of different regions, freeness of trade is also an important factor affecting the inter-regional trade. Fourth, freeness of the inter- and inner-regional trade has different implications for different regions. In a situation of regional economic imbalance, the increase of inter-regional trade freeness provides more production shares for those developed regions and promotes their economic development, but for those less developed regions it means a more disadvantaged position, widening the gap among regions. For those less developed regions, to enhance the inner-regional freeness of trade, that is, to optimize the regional economic environment, can promote their economic development. Fifth, transportation costs and border effects (that is, the local consumption propensity) are two important factors impacting the freeness of trade. Apart from the differences of language, culture and customs of various regions, the key reason for China's existing inter-provincial border effects is that, on the one hand, China still lacks strict and perfect product quality control system, as well as consumer protection system, therefore, when lacking information about quality and the prices are similar, the consumers who pursue the maximization of utility may select more local products; on the other hand, because of the existing tax system and the regional development assessment systems, governments also tend to select local products in their purchases.This study also shows that the concentration of production can generate income concentration, and concentration of economic activities in space (that is, agglomeration) is, to a certain extent, more efficient than the spatial dispersion. However, the concentration of economic activities usually brings about the problems of uneven regional development, thus the choice between efficiency and equity becomes an inevitable dilemma for those decision-makers. Since reform and opening up, our government basically has taken the principle of "giving priority to efficiency with due consideration to fairness" and China has made outstanding economic achievements. However, from a long-term point of view, in pure market regulation, the regional imbalance of economic development will result in more and more poverty in under-developed regions, more and more wealth in affluent regions, which is the so-called "Matthew Effect". Inter-regional trade flows will decline due to the shrinking market size of the under-developed regions, which eventually is not conducive to long-term sustainable development of the entire national economy. Therefore, if we simply rely on the market, it is unlikely for us to accomplish the missions of promoting a coordinated development of regional economy and building a harmonious society. The government must play a role.