Convergence Of Regional Economy In China

In recent years, a large empirical literature has attempted to evaluate the disparity among the economic growths in different countries or in different regions of one country. Whether income levels of poorer countries or regions of the world are converging to those of the richer countries or regions is by itself a question of paramount importance for human welfare. However, interest in this question has been fueled by the fact that it became linked with the issue of validity of alternative growth theories. It has been generally thought that convergence was an implication of the neo-classical growth theory, while the new growth theories did not have this implication. Accordingly it was believed that by testing for convergence, one could test for the validity of alternative growth theories. In the pioneering work in 1992, Barro and Sala-i-martin put forward the econometrical equation, which is deduced from the balance equations in Ramsey-Cass-Koopmans model as we will point out in the following chapter, to the convergence. Many of the contributors to this convergence literature in our country, following Barro and Sala-i-martin, have fitted regressions relating the average growth rate of per capita output over some time period for a sample of countries to initial per capita output and country characteristics, which we call testing in cross-section perspective. They have then applied standard methods of inference to the estimated coefficients. As we will point out in this paper, convergence testing in cross-section perspective has suffered from galton's fallacy, bias in omitted variables and other problems involving the explanative variables and the econometrical techniques.With development of econometrical techniques in time series, testing convergence in time series perspective, defined by Callino and Miller (1993) as stochastic convergence has been received more and more attention. This paper investigates the time series evidence to convergence among Chinese regions. With application of traditional unit root test i.e. ADF test, endogenous unit root test with one structural break developed by Zivot and Andrews (1992) and endogenous unit root test with two structural breaks developed by Lumsdaime and Papell(1996), we find that the series of eastern china have no evidence of stationarity, but the ones of middle and western china have strong evidences to reject the nonstationary null hypothesis. Also our results show that the most striking break point in the last 50 years, detected by the endogenous unit root test, lies in the late 80's and early 90's of last century. After the break, the disparity among the regions of our country has been enlarged. The implication of our positive results indicates the technological shocks play an important role in explaining the divergence of eastern output from the average level of the nation, but seem not important from middle and western output series. Furthermore we give the economic analysis implied by our positive results and discuss some reasons on the disparity among the regions of china.