Reducing Regional Disparities in China: An Evaluation of Alternative Policies

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

No 09-06, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: Regional disparities in output per capita and income in China are large and persistent. They have been the subject of considerable concern to policy-makers at the highest level for decades, yet little is known about the effectiveness of various alternative policies which may be used to combat them. In this paper we address this issue by analysing the effectiveness of a range of policies by both regional and central governments. We use a small model with various features of the Chinese economy: two regions (the interior and the coast), two industries (agriculture and manufacturing), inter-regional capital mobility, internal migration subject to the hukou system of household registration and some features of the Chinese tax and expenditure system. The model is calibrated to Chinese data and simulated to analyse the effects of a number of policies on a range of variables but focussing on per capita output disparities and welfare. We find that a policy reducing internal migration costs is effective in reducing the per capita output gap but does so at a substantial cost to the coast. Policies which improve agricultural productivity in the interior region are most likely to both reduce the gap and make both regions better off. Changes in government consumption expenditure, central government fiscal redistributions and tax cuts, on the other hand, are less effective and have their long-run effectiveness reduced by migration.

Keywords: regional disparities; China; numerical modelling; hukou (search for similar items in EconPapers)
Pages: 65 pages
Date: 2009
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Citations: View citations in EconPapers (1)

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Journal Article: Reducing regional disparities in China: An evaluation of alternative policies (2010)
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