Growth path heterogeneity across provincial economies in China: the role of geography versus institutions

Guanchun Liu (), Chien-Chiang Lee () and Yuanyuan Liu ()
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Guanchun Liu: Shanghai University of Finance and Economics
Yuanyuan Liu: Fudan University

Empirical Economics, 2020, vol. 59, issue 2, No 1, 503-546

Abstract: Abstract This paper investigates whether China’s provincial economies follow the same growth path by adopting a finite mixture model in which provinces are sorted into groups according to the similarity in the conditional distribution of their growth rates. The method is flexible in that it accounts for (i) endogenous classifications other than given priori, (ii) heterogeneous marginal effects of determinants, (iii) the possibility of growth path transformation, and (iv) the roles of geographic location and institutions in the growth path. The results reveal that all provinces do not follow a common growth process, but rather two distinct growth regimes. Particularly, one is dominated by foreign direct investment and financial depth, while the other is dominated by trade openness. The growth process of provinces in the central region evolves around the year 2004 from the former to the latter. More importantly, geography and institutions help sort provinces into groups, and institutions are more predominant.

Keywords: Multiple regimes; Finite mixture model; Geography–institutions debate; Growth path; China (search for similar items in EconPapers)
JEL-codes: C33 O11 O47 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s00181-019-01639-y

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