Macroeconomic shocks in China: Do the distributional effects depend on the regional source?
- 56 Downloads
There is a growing consensus that, as part of China’s “New Normal”, economic growth will slow permanently. Given China’s geographic diversity, the slowdown will likely have differential effects on China’s provinces which will interact with existing disparities. We investigate whether confining the initial effect of an aggregate shock to one of three regions (coast, centre and west) affects the inter-provincial distribution of its effects over time. We use two alternative models: a restricted VAR model of 28 provinces and three regions and a sequence of 28 four-equation VAR models. We find that the two methods give remarkably similar results—a shock to a particular region’s output has its main effects on the provinces in that region, although this differs over time and across regions. A shock which originates in the coastal region affects mainly the coastal provinces in both the short and long runs so that a growth reduction is likely to ameliorate existing inter-provincial disparities. However, there is more diffusion of the effects of a central shock, particularly in the long run. A shock to the western region also generates spillover effects in the long run although these are to the coastal provinces so that a growth slowdown will tend to reduce existing disparities.
JEL ClassificationE61 R50 O53
An earlier version of this paper was presented at the Workshop on Regional, Urban and Spatial Economics at South-West University of Finance and Economics in Chengdu and at the Meeting of the European Regional Science Association in Vienna. We are grateful for useful comments received there. We have also benefitted from helpful comments by the editor and two anonymous referees. The research reported in this paper was partially funded by a National Natural Science Foundation of China Grant (No. 71773036).
- Bai C-E, Zhang Q (2017) Is the People’s Republic of China’s current slowdown a cyclical downturn or a long-term trend? A productivity-based analysis. Asian Development Bank Institute Working Paper No. 635Google Scholar
- Cai F (2016) China’s economic slowdown under supply-side perspective. China Econ 11(5):4–15Google Scholar
- Chen Z (2013) The political economy of urban and rural development in China. In: Lu M, Chen Z, Zhu X, Xu X (eds) China’s regional development. Routledge, London, pp 92–133Google Scholar
- Groenewold N, Chen A, Lee G (2008) Linkages between China’s regions: measurement and policy. Edward Elgar, CheltenhamGoogle Scholar
- Hirschman A (1958) The strategy of economic development. Yale University Press, New HavenGoogle Scholar
- Kuznets S (1955) Economic growth and income inequality. Am Econ Rev 45:1–28Google Scholar
- Lou J (2016) The possibility and approaches to an upper middle growth rate. Front Econ China 11(2):196–209Google Scholar
- Myrdal G (1957) Economic theory and underdeveloped regions. Duckworth, LondonGoogle Scholar
- National Statistical Bureau (2009) New China 60 years statistics compilation. Statistical Publishing House of China, BeijingGoogle Scholar
- National Statistical Bureau (Various issues) China Statistical Yearbook. Beijing: Statistical Publishing House of ChinaGoogle Scholar
- Xu X, Wang X, Gao Y (2013) The political economy of regional development in China. In: Lu M, Chen Z, Zhu X, Xu X (eds) China’s regional development. Routledge, London, pp 41–90Google Scholar