| The purpose of this dissertation is to study income convergence and long-run economic growth of China at the province level during the reform period 1978–97, using a panel data approach and a new data set of China's national income (Hsueh and Li, 1999). We ask two important questions: (1) Are China's provincial incomes as a system converging or diverging? (2) Why are sources of provincial income convergence or divergence? In particular, what is the role of international trade in the provincial long-run economic growth?; To examine question (1), the panel data method accounts for not only province-specific initial technology level but also the heterogeneity of the technological progress rate between the five fast-growing coastal provinces (the “five dragons”) and the other provinces. Moreover, the estimation problem of weak instruments is addressed by the system GMM estimator (Blundell and Bond, 1998). The main empirical finding is that there is a system-wide income divergence during the reform period because the five dragons do not share a common technology progress rate with the other provinces. Also, we use the panel unit root approach (Evans, 1998), which has advantages of allowing for complete heterogeneity across the provinces in the light of the panel unit root test of Im, Pesaran and Shin (1996), to re-evaluate question (1). Our findings are consistent with the findings of the Solow-model-based panel data studies: there is a system-wide income divergence during the reform period.; To address question (2), we characterize China's provincial economies by two aspects: a long-run income level is determined by an aggregate production function with trade-embodied knowledge spillover effects. The short income behavior is the catch-up dynamics. The resulting catch-up dynamics is in an error correction form, which can be empirically estimated by the Pooled Mean Group panel data estimator (Pesaran, Shin and Smith, 1999). Consequently, the growth accounting analysis shows that the productivity growth is more important than capital accumulation growth in all provinces except Beijing. Moreover, the spillover effects vary significantly in the productivity growth across the provinces. |
