China¡¯s Economic Reform and Regional Productivity Differentials

Bai-Yang Liu and Bong Yoon
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Bai-Yang Liu: MCI

Journal of Economic Development, 2000, vol. 25, issue 2, 23-41

Abstract: Reform of Chinese economy, especially the Urban Reform announced in 1984, has decentralized government control over the economy and encouraged freer trade, domestic as well as international. Consequently, strengths and weaknesses of geographic regions emerge and each region may specialize according to its comparative advantage. The abandonment of hitherto regional equality policy produces an anxiety over worsening regional disparity especially between the Coastal East and the Interior West. The reform policy is based on the Chinese leaders¡¯ belief that allowing some areas to get rich ahead of others produces a trickle-down of prosperity to less developed interior regions. Is the trickle-down consistent with the reality, especially with the phenomenon of the Coastal-led development triggered by the ¡°Open Door¡± policy for foreign investment and trade? This paper examines the pattern of changes in total factor productivity differentials in industry across regions of China during 1986-1991, a period posterior to initiation of the industrial reform. The estimates of the panel data production function model, with regional and temporal variations in levels of productivity, confirm regional convergence of total factor productivity over the post reform period.

Date: 2000
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