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Synchronization of regional growth dynamics in China

Zhicun Bian, Jun Ma, Jinlan Ni and Shamar Stewart

China Economic Review, 2020, vol. 61, issue C

Abstract: In this paper, we document significant evidence of time-varying synchronization of the regional growth dynamics within China. Using a dynamic factor model extended with time-varying loading parameters and stochastic volatility, we observe a substantial amount of time variations in the loading parameters of the common factor– implying that the exposure of regional growth to the common national factor varies substantially. We find that the correlation in cross-region economic growth performance increased during the recent global recession and declined post-recession, albeit still at a higher level than before 2008. While the large degree of synchronization of regional growth dynamics permits the central government or central bank to implement a uniform fiscal or monetary policy, this concurrently reduces China's ability to stymie the propagation of external shocks and instead increases systemic risks across regions.

Keywords: Dynamic factor Model; Synchronization; MCMC Gibbs-sampling algorithm (search for similar items in EconPapers)
JEL-codes: F3 C32 C11 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.chieco.2018.09.007

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China Economic Review is currently edited by B.M. Fleisher, K. X. D. Huang, M.E. Lovely, Y. Wen, X. Zhang and X. Zhu

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