What Factors Can Explain the Rising Spatial Disparity in Economic Activities in China?

• DOI: http://doi.org/10.1111/cwe.12332
• Published date: 01 May 2020
• Date: 01 May 2020

©2020 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 51–72, Vol. 28, No. 3, 2020

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*Lihong Yang, Associate Professor, School of Economics, Nanjing Audit University, China. Email: Lihong.

yang@ruc.edu.cn; Jinwen Cheng, Shenzhen Municipal Financial Regulatory Bureau, China. Email: jinwen@

ruc.edu.cn; Linhui Yu (corresponding author), Professor, School of Economics, Zhejiang University, China.

Email: yulh@zju.edu.cn; Chenhua Li, Professor, School of Economics, Nanjing Audit University, China.

Email: chhli@163.com. The authors are grateful for support from the National Natural Science Foundation of

China (No. 71573269 and No. 71873120), the China National Social Science Foundation (No. 16BJY119) and

the Priority Academic Program Development of Jiangsu Higher Education Institutions and Zhejiang Province

Natural Science Foundation (No. LY18G030004).

What Factors Can Explain the Rising Spatial

Disparity in Economic Activities in China?

Lihong Yang, Jinwen Cheng, Linhui Yu, Chenhua Li*

Abstract

This paper explores the impact of spatial externalities in shaping China’s economic

geography by establishing a theoretical framework that contains regional productivity,

trade barriers and local amenities to capture spatial externalities between different

regions over time. Combining provincial data on bilateral trade flows with observed

information about economic geography during the period 1998–2013, we estimate the

distribution and marginal contribution of each explanatory factor. Empirical results

suggest that regional labor density and wage are positively related to exogenous

productivity and amenities, and negatively related to trade barriers. Meanwhile,

variation in the marginal contribution of exogenous productivity and amenities and trade

barriers refl ects the regional temporal–spatial features in China’s recent marketization

process. Therefore, the Chinese government should place more emphasis on absorbing

advanced technologies and reducing inter-regional market barriers to promote balanced

regional development and improve the effi ciency of China’s spatial resource allocation.

Key words: China, economic topography, regional amenities, trade barrier

JEL codes: F12, P48, R11

I. Introduction

The issue of regional growth imbalance is not only a long-standing concern of the

academic community but has also become a policy focus for governments, especially

in developing countries. Taking China as an example, since the reform and opening

Correction added on 26 June 2020, after initial online publication. A duplicate of this article was published under the

DOI 10.1111/cwe.12297. This duplicate has now been deleted and its DOI redirected to this version of the article.

Lihong Yang et al. / 51–72, Vol. 28, No. 3, 2020

©2020 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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up in the late 1970s, the regional gap in economic growth has increased over time.1 It

is an indisputable fact that there is a signifi cant disparity in economic activities across

China, and th is disparity shows no sign of convergence. In 2013, the labor density in

Beijing and Shanghai was 695.73 and 2159.16 persons per square kilometer and wages

were RMB70,388.4 and RMB67 ,459.1, respectively, while in Qinghai and Xinjiang,

the labor density was only 4.35 and 6.61 persons per square kilometer, and wages were

RMB32,231.7 and RMB34,555.7, respectively (NBS, 2014). The disparity is still

expanding rather than narrowing. Figure 1 displays the distributions of labor density and

wages among Chinese provinces in 2001, 2005, 2009 and 2013. From 2001 to 2013,

the standard deviations of the wage and labor density increased by 207.27 percent and

71.50 percent, respectively, while the coeffi cient of variation of labor density increased

by 23.38 percent (NBS, 2014).

Figure 1. Disparities in Labor Density and Wage in China: 2001, 2005, 2009 and 2013

Source: NBS (2014).

Note: For each year, the labor density, wage and income are normalized separately.

There are many explanations for spatial disparity in economic activity. Sachs (2001)

and Acemoglu et al. (2002) document that, as a result of regional differences in nature

endowments or institutional factors, regional productivity can be inherently different. The

spillover effect of productivity suggests that a region’s overall productivity is positively

1Although some research has shown that the relative gap within some of China’s regions has narrowed, the

absolute gap is still widening (Ma and Tang, 2020).