REDUCING REGIONAL DISPARITIES IN CHINA: IS INVESTMENT ALLOCATION POLICY EFFECTIVE?

Anping Chen and Nicolaas Groenewold
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Nicolaas Groenewold: UWA Business School, The University of Western Australia

No 11-08, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: Inter-regional disparities in China have been an important concern for central-government policy-makers for most of the past 60 years. One of the main policy instruments for redressing the balance between the prosperous coastal region and the poorer inland region has been the allocation of investment spending. Yet there is little empirical work evaluating the response of disparities to changes in the regional distribution of investment. We help fill this gap and analyse the two-way relationship between these variables within a VAR/VECM framework, the results of which we tentatively interpret in terms of a simple demand model. We find, surprisingly, that changes in the regional allocation of investment have only a modest positive effect on inter-regional output disparities while the effect in the opposite direction is also positive but much larger. The effects of investment on output are larger, though, for the post-1978 period. We find our overall results to be robust to numerous variations in variable definition.

Pages: 44 pages
Date: 2011
New Economics Papers: this item is included in nep-geo, nep-tra and nep-ure
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