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China’s business cycles at the provincial level: National synchronization, interregional coordination and provincial idiosyncrasy

Dayu Liu, Qiaoru Wang and Yang Song

International Review of Economics & Finance, 2020, vol. 69, issue C, 629-650

Abstract: To explain the emerging idiosyncrasy of China’s provincial business cycles, we apply a dynamic hierarchical factor model to decompose cyclical fluctuations in China’s provincial economy during 1988-2017 into a national factor, four regional factors, and several provincial factors besides idiosyncratic factors. We find that the national factor is key to the formation of most provincial business cycles, which hints that most provincial economic growth are featured by the “medium-high growth rate and low fluctuation” pattern in common. Additionally, regional business cycles display a ternary distribution in which the East leads, the Central and West follow, and the Northeast remains relatively independent. Moreover, there is a clear “club convergence” trend in provincial business cycles in all regions except the Northeast whose provincial business cycles are increasingly idiosyncratic. The government should be vigilant about the local idiosyncratic risk and strengthen the coordination mechanism of provincial economic growth to achieve a steady-state economy.

Keywords: Business cycles; National synchronization; Interregional coordination; Provincial idiosyncrasy; Dynamic hierarchical factor model (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.iref.2020.06.006

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