Research On The Development Difference Of China’s Provinces Based On The Perspective Of Institutional Quality

After the executing of the reform and opening-up policy,the development level varies enormously across china’s provinces,and the gap present significantly increasing trend over time.Why the development level varies so hugely across one country’s provinces?Using the production function of Harrod-Neutral form,our study analyses the influences on the variation of the development of the physical capital and human capital and the Harrod-Neutral productivity,from the point of annual cross-section and time series,and decomposition of the growth rate.Our result show that the physical capital and human capital can only partially explain the variation,and a large amount of variation is due to the difference of the level of the Harrod-Neutral productivity.According to relating literatures,R&D is not a significant explanatory factor of the productivity.What is the deeper reason?Our study shows that the differences in the Harrod-Neutral productivity and development level are driven by differences in institutional quality(IQ).We treat institutional quality as endogenous,and study the influence of institutional quality on the Harrod-Neutral productivity and development level,using the method of instrumental variable(IV)and Generalized method of moments(GMM),based on the data across provinces.We find that the institutional quality have diminishing marginal effect on the development level and have different influence in different time stages.During the starting time of the reform and opening-up policy,1979-1991,the institutional quality have significant positive influence on the development level.However the influence decreased to insignificant in 1992-2000.The participation in WTO has increased the institutional quality significantly,which resulted that the influence on development level increased to most significant positive.Because of the financial crisis,the influence decreased a little in 2009-2014.At the last,we give some policy advice on improving the variation.Based on our result,the long-term development of the economy can only be achieved by insisting on improving the institutional quality,with the diminishing marginal effect of institutional quality.It is more important to increase the institutional quality of middle and west area,which will not only raise the development level directly but also will increase the Harrod-Neutral productivity leading to higher development level,rather than provide more physical capital.