Regional economic growth in China: new evidence from panel data

Abstract

This essay investigates the contributions of different factors to regional economic growth in China. A statistical analysis on a provincial panel data from 1978 to 2007 confirms the increasing regional inequality in China can be understood as different patterns of regional economic growth, which are affected by factors such as capital and labour inputs, education and institutional variables. We base our study on a growth accounting model with a Cobb-Douglas production function. We find that there are significantly positive associations between education and GDP per worker, total factor productivity and wage. In particular, senior secondary schooling is most important for China’s productivity and wage, especially for economic growth. University and above only improves the economic growth, suggesting that government should pay more for the university and above than individuals. The effect of education on economic growth appears to be much stronger after 1994 and mainly occurs in the coastal region. Moreover, institutional variables, such as FDI and openness affect positively, while inflation rate and birth rate have negative effect. The impact of semi-private and private units, fiscal expenditure on education and industrialization on the three productivity proxies are mixed. We conclude that investing in human capital with further market reform will be an effective policy to promote economic growth as well as a remedy to increasing regional inequality.