Inter-provincial Disparities in the PRC

In the PRC's administrative system, provincial level is very important Many studies have focused on regional income disparity in the PRC based on provincial data, and most of these studies have been based on the data that existed before the PRC implemented its first national economic census in 2004. For example, in 2004 GDP was considered to be 1.369 trillion yuan before the census, and was adjusted to 1.599 trillion based on the results of the census. The adjusted GDP was 17.8% higher than the non-adjusted figure. All regions made adjustments to their historical economic data in accordance with the result of this national economic census. For example, in 2004 GDP in Beijing, Shanxi, and Guangdong were adjusted upward by 41.5%, 17.4%, and 17.4%, respectively, and that in Heilongjiang, Hubei, and Guangxi were adjusted downward by 10.4%, 4.8%, and 10.7%, respectively. The adjusted data reflect the economic conditions of the regions more accurately. In this paper, our analysis is based upon the adjusted data, which is based on the results of this national economic census.

A. Trend of Inter-provincial Income Disparity

1. Changes in regional disparities measured by ratio of maximum to minimum values

The ratio of maximum to minimum values of income (Max/Min, or MMR) can describe regional disparities. We first conduct a simple analysis of regional disparities using this measure.³

At the beginning of the reform and opening up of the economy, regional disparities in the PRC were relatively large. In 1978, the per capita GDP of Shanghai was 2,497 yuan, almost 14.2 times that of Guizhou province, with the lowest per capita GDP. As indicated by Figure 5 [ PDF 117KB | 1 page ], the ratio of maximum to minimum per capita GDP decreased from 14.2 in 1978 to 7.3 in 1990, rose to 13.0 in 2000, and stayed relatively stable thereafter. But that has not been the case with per capita consumption. Inter-provincial disparities in terms of per capita consumption have been generally on the rise since the 1980s, but after 1999, the level remained very stable. In 2005, both the ratio of maximum to minimum per capita GDP and per capita consumption declined compared with those of the previous year.

The changing pattern of regional disparities will be slightly different if we exclude the three municipal cities of Beijing, Tianjin, and Shanghai. They are highly developed and have low proportions of rural population.⁴ Thus, the three cities are not easily comparable with other provinces or autonomous regions. Data shown in Figure 6 do not include these three municipal cities. The ratio of maximum to minimum per capita GDP among the provinces, excluding the three municipalities mentioned, is smaller than that among all of the provinces. For example, the ratio of maximum to minimum per capita GDP among all of the provinces in 1978 was 14.3, and that among the provinces excluding these three municipal cities was 3.9, and in 2005 they were 13.4 and 5.5, respectively.

Figure 6 [ PDF 128.8KB | 1 page ] also depicts changes in the ratio of maximum to minimum values of per capita GDP among the provinces excluding the three municipalities. The data show that the trend of the change in regional disparities among the 28 provinces and autonomous regions (excluding the three centrally administrated municipalities) is similar to the regional disparities among the four regions. There has been a slight decline of regional disparity among the provinces and autonomous regions since the reform and opening up of the economy in the late 1970s up to 1990. The maximum to minimum ratio rose to 4.86 in 2000, reached the peak of 5.64 in 2004, and then declined in 2005. A similar trend is shown in the maximum to minimum ratio of per capita household consumption.

2. Changes in inter-provincial disparities measured by Gini coefficient and Theil index

Although maximum and minimum values intuitively reflect changes in regional disparities, they cannot fully show inter-provincial disparities in terms of development level. Therefore, we will use both the Gini coefficient and the Theil index to supplement our analysis in this section.

Figure 7 [ PDF 128.8KB | 1 page ] and Figure 8 [ PDF 117.9KB | 1 page ] show inter-provincial disparities based on per capita GDP at current and constant prices (1978 = base year), respectively.

Regional disparities in terms of per capita GDP declined between 1978 and 1990. As shown in Figure 7, the unweighted Gini coefficients based on per capita GDP at current prices declined from 0.357 in 1978 to 0.276 in 1990—a decrease of 22.7%. In the same time period, there were declines of 12% and 33.4% for the weighted Gini coefficients and Theil index, respectively, based on per capita GDP. The results based on 1978 constant prices are quite similar, but the amount of decrease is smaller. The unweighted Gini coefficients and Theil index decreased by 6.1% and 6.3%, respectively, and the weighted Gini coefficients increased by 0.9%.

In the 1990s inter-provincial income disparity grew rapidly. The unweighted Gini coefficients based on per capita GDP at current prices increased from 0.276 in 1990 to 0.347 in 2000— an increase of 25.7% with an average annual growth rate of 2.3%. The weighted Gini coefficients and Theil index based on per capita GDP increased by 25.8% and 57.6%, respectively.

Compared with the 1990s, the widening of regional disparities in the PRC has gradually slowed down since 2000. The unweighted Gini coefficients based on per capita GDP at current prices increased from 0.347 in 2000 to 0.349 in 2005—a difference of only 0.5%. Compared with the previous year, this index as well as some other indexes decreased in 2004 and 2005.

Figure 9 [ PDF 119.7KB | 1 page ] and Figure 10 [ PDF 119.7KB | 1 page ] show changes in inter-provincial disparities in terms of per capita GDP, again exclusive of Beijing, Tianjin, and Shanghai, at current and constant prices (1978 = base year), respectively. The calculations excluding the three cities yield smaller disparities than calculations including all of the provinces. For example, the range of unweighted Gini coefficients based on per capita GDP at current prices among the 31 provinces is between 0.276 and 0.356, but that among the provinces excluding these three cities is between 0.15 and 0.231. The weighted Gini coefficient has risen by almost one half from 0.159 in 1978 to 0.238 in 2005. The unweighted Gini coefficient also shows a similar pattern. The Theil index has climbed from 0.041 in 1978 to 0.101 in 2005. The figures also reveal that the rising trend of inter-provincial disparities has slowed down since 1994.

Based on the results of the above statistical indexes, the change in disparities among the provinces of the PRC can be divided roughly into three periods: (i) a period of decreasing disparities among the provinces in the 1980s, (ii) a period of rapid increase in disparities among the provinces in the 1990s, especially in the first half of the 1990s, and (iii) a period of slowly increasing disparities since 2000, in which some indexes in 2004 and 2005 even reflect decreasing disparities. The income disparity among the 28 provinces and autonomous regions (excluding the three centrally administrated municipalities) is relatively small and the change is relatively stable. The Gini coefficient fluctuated between 0.22 and 0.23.

B. Spatial Decomposition of Inter-provincial Disparities

In order to explore the spatial distribution of inter-provincial disparities in the PRC, we will apply the group decomposition technique in the following analysis.

Figure 11 [ PDF 99.2KB | 1 page ] shows the decomposition result of regional disparity from 1978 to 2005.⁵ If the Theil index of all the 31 provinces and autonomous regions is decomposed based upon the four regions, the share of disparity among the four regions as part of overall disparity rises from 40% in the initial period of reform and opening to 70% in recent years. The disparity among the provinces and autonomous regions is mainly caused by the disparity among the four regions. The disparity within the eastern region has a share around 20% of overall disparity, while in the rest of the PRC, the disparity within the western, central, and northeastern regions all together have only a share of 10% of overall disparity. Also, the decline in regional disparity of the PRC during the period 1978–1990 was mainly due to the significant decline of internal disparity within the eastern region. In 1978, the internal Theil index of the eastern region was 0.055, which constitutes a share of 49.8% of the national total Theil index (0.110). In 1990, the internal Theil index of the eastern region constituted a share of 26.6% of the national total—a decline of 23.2 percentage points. The absolute value of the national Theil index declined by 0.037, and the absolute value of the internal Theil index of the eastern region declined by 0.035, which makes for a share of 96% of the decline of the national Theil index. Therefore, it can be said that the change in eastern internal regional disparity can explain in large part the change of the regional disparity of the whole country.

Figure 12 [ PDF 310.5KB | 1 page ], Figure 13 [ PDF 310.5KB | 1 page ], Figure 14 [ PDF 314.1KB | 1 page ], and Figure 15 [ PDF 314.1KB | 1 page ] show the distribution of the PRC's provinces and autonomous regions according to their level of development in terms of per capita GDP in 1978, 1990, 2000, and 2005, respectively. In 1978, there was large difference in the level of development in the eastern region. Among the ten provinces in this region, only Beijing, Tianjin, Shanghai municipalities and Jiangsu province had achieved relatively higher per capita GDP, while Zhejiang, Shandong, Hainan, and Fujian provinces were ranked in the medium and lower levels of per capita GDP of the PRC. Qinghai province ranked seventh in the PRC at that time.

In 1990, there were significant increases in the ranks of Guangdong, Zhejiang, Shandong, Hainan, and Fujian provinces. Nearly all provinces in the eastern region achieved relatively higher per capita GDP except Hubei, Fujian, and Hainan. Therefore, internal disparity was reduced significantly. In 1990, Xinjiang province in the western region was ranked among the top ten in the PRC. Qinghai and Tibet were among the middle ten. In the year 2000, no province of the western region ranked in the top ten (see Figure 14 [ PDF 314.1KB | 1 page ]), But Inner Mongolia, in the western region, entered the top ten in 2005.

Since 1990, the continuous widening of disparities among the four regions is to blame for the expansion of regional disparities. During this period, the process of the PRC's reform and opening up of its economy have further advanced, the economic growth rates of the more developed eastern provinces have been higher than the nation's average level, and all the eastern provinces except Hebei and Hainan have become high per capita GDP regions (see Figure 14). Figure 14 also shows that not one province of the western region was in the top ten in 2000. Therefore, disparities between the eastern region and other regions have grown further. The internal disparities of the four regions have changed modestly from 1990 to 2005, but the between-group Theil index, reflecting disparities among the four regions, has increased by 0.044 from 0.045 in 1990 to 0.089 in 2005, which accounts for 86.3% of the change of the nation's Theil index (this index increased from 0.081 to 0.124).

Finally, the present inter-provincial disparities in the PRC are dominated by disparities among the four regions, especially disparities between the eastern region and the other three regions. Disparities among the four regions accounted for 71.8% of the total disparities in 2005. The share of internal disparities of the eastern region was 17.1%, and the share was 8.7% for internal disparities of the western region and 2.3% for internal disparities of both the central region and the northeastern region.

C. Factor Analysis of Regional Income Disparity

Changes in regional income disparity can be caused by differences in regional economic growth rates. If high-income provinces grow faster than the national average, the interregional income disparity can expand; if low-income provinces grow faster, the inter-regional income disparity will narrow.

1. Changes in patterns of regional growth and regional disparities

Figure 16 [ PDF 91.2KB | 1 page ] and Figure 17 [ PDF 91.2KB | 1 page ] describe the regional growth patterns in 1990–2000 and 2000–2005, respectively. After the PRC began its reform and opening up, the average speed of development in the eastern region was higher than in the other regions because the coastal region had a favorable investment environment, an abundant supply of labor, and was opened to the outside world earlier than the rest of the country. This trend became more tangible after the 1990s. In Figure 16, many provinces of the eastern region are located in the upper-right part of the figure (with higher incomes and higher growth rates), while many provinces of the western and central regions are located in the lower-left part (with lower incomes and lower growth rates). This resulted directly in widening regional disparities in the PRC in the 1980s.

After 2000, however, economic growth in the PRC's less developed regions increased measurably. Not only did some low-income regions such as Inner Mongolia, Tibet, Qinghai, and Shanxi post growth rates higher than the national average, other regions whose per capita GDP was relatively low also saw a narrower gap between their growth rates and the national average level than in the 1990s. Comparing Figures 16 and 17, we can find that the number of provinces located in the lower-left part of the figure (with lower incomes and lower growth rates) decreased, and number of provinces located in upper-left part (with lower incomes and higher growth rates) increased. As a result, the widening of regional disparities in the PRC has gradually slowed down since 2000.

A comparison between the GDP growth rates of the regions in 2003–2005 and the average growth rates during the 1990s can more clearly indicate changes in patterns of regional economic growth in the PRC. As indicated in Table 2 [ PDF 88.2KB | 1 page ], five provinces saw lower growth rates in 2003–2005 when compared with the average growth rates in the 1990s. Except for Hubei, all of these provinces had per capita GDP levels higher than the national average. The other 26 provinces and municipalities saw higher growth rates in 2003–2005 than in the 1990s. In particular, Tianjin, Shanxi, Jiangxi, Liaoning, Heilongjiang, Inner Mongolia, Shaanxi, and Qinghai saw fairly quickly rising growth rates. Of these eight provinces and municipalities, six (except Tianjin and Liaoning) were noted for relatively low per capita GDP. Therefore, the growth rates in 2003–2005 slowed down somewhat in the developed regions and gained momentum in the less developed regions. This resulted directly in smaller regional disparities in the PRC in 2004 and 2005.

To sum up, the regional growth pattern has changed in recent years; compared with the 1990s, the growth rate in the PRC's developed coastal region has slowed down somewhat. Meanwhile, economic growth rates in low-income regions have increased slightly. As a result, the widening of regional disparities has slowed down.

The factors that led to the changes in the growth pattern and regional disparities included both policies and the macroeconomic environment. Among these the following five factors are assumed to be the more important and effective.

1. The implementation of the Western Area Development Strategy and revitalization of old industrial bases in the northeast has effectively promoted economic growth in these regions and eased widening regional disparities.

The central government decided in 1999 to implement the Western Area Development Strategy. As a result, the state dramatically increased funding for construction in the western region. From 2000 to 2003, the central government spent more than 360 billion yuan in fiscal construction on the development of the western region. In particular, more than 220 billion yuan in long-term government bonds were issued for this purpose. In addition, the financial institutions in the western region increased their loan balance by more than 950 billion yuan. The state launched 50 new key projects in the western region, with a total investment of 730 billion yuan. In 2004, the PRC launched another 10 key projects for the development of the western region, with a total investment of 80 billion yuan. During 2000–2004, the central government allocated a total of about 460 billion yuan in fiscal construction funds for the western region, of which more than one-third was raised through government bonds issued for the western region. The central government also earmarked about 500 billion yuan in terms of fiscal transfer payments and special subsidies. In October 2003 the central government began to implement policies to revitalize economic and social development in old northeastern industrial bases. Since then the economic growth of three provinces in the northeastern region has accelerated. Table 3 [ PDF 87.3KB | 1 page ] indicates that from 2000 to 2005, the eastern region's share of nationwide investment dropped, and the central and western regions' shares increased.

Changes in the national distribution of investment in fixed assets led to changes in investment rates in various regions. In the early 1980s, the investment rates were largely identical across the PRC's four regions. In the late 1980s, however, the state introduced an asymmetrical development strategy to allow some regions to get rich first and then let the richer regions help the poorer ones get rich. As a result, the coastal region benefited from system innovation and liberalization. While domestic investment began pouring into the eastern coastal region, foreign investment also became concentrated in this region. Accordingly, the investment rate rose dramatically in the eastern region and remained low in other regions, with the eastern region's investment rate being 7–8 percentage points higher than those of other regions. In the first half of the 1990s, the eastern region's investment rate was about 12 percentage points higher than that of the central region and about 10 percentage points higher than those of the western and northeastern regions. But after 2000, the western region's rate of investment in fixed assets rose visibly and surpassed that of the eastern region. In 2004, the western region's average investment rate was 49.8 percent, which was higher than the eastern region's 42.1 percent, the central region's 39 percent, and the northeastern region's 36.9. Intensive investment spurred rapid economic growth in the western region and a rise in the income level of the local people. Clearly, the implementation of the Western Area Development Strategy has played an important role in narrowing regional disparities.

2. The regions with rich resources have seen their GDP growing faster with economic growth since 2002.

The PRC's economy entered a new round of rapid growth in 2002. Compared with the preceding years, nearly all regions saw their economies grow faster.

In fact, nationwide shortages occurred in the coal, electricity, oil, and transport sectors from 2002 to 2004, with price levels persistently climbing. The price levels of coal and crude oil rose particularly fast. In 2004, the ex-factory price index for the PRC's mining industry was 129.3, far higher than the consumer price index (102.4) and the ex-factory price index for industrial goods (107.1). Steep hikes in energy prices boosted the outputs of various producing regions and directly increased their total output values. They also attracted heavy investment in these sectors, thus pulling up economic growth in the regions where they were located. Table 2 suggests that Tianjin, Shanxi, Jiangxi, Liaoning, Heilongjiang, Inner Mongolia, Shaanxi, Qinghai, and Shandong were the places where growth rates were fairly fast over the two years. Except for Tianjin, all these places have one thing in common: they all enjoy comparative advantage in resource industries (mainly coal, oil, and natural gas). Therefore, we can say that the narrowing of regional disparities in recent years was spurred by the rapid growth of the resource (energy) industries in this new round of economic growth.

3. The pulling effect of foreign direct investment eased somewhat in the eastern coastal region.

Compared with local capital investment, investment from outside a region has a more tangible pulling effect on that region's economic growth because it does not squeeze local consumption. In particular, foreign direct investment not only provides direct funding support, but also brings to the local economy higher levels of technology and management expertise. Therefore, such investment helps increase the competitiveness and growth rate of the regional economy. In the 1990s, foreign direct investment on average accounted for a visibly higher proportion of total investment in the eastern region than in the central and western regions. But after 2000, the ratio of foreign direct investment acquired by the eastern region compared to local GDP declined slightly. The ratio was 8.6 percent in 1995, but dropped to 5.3 percent and 4.4 percent respectively in 2000 and 2004, or 3.3 and 4.2 percentage points lower than in 1995. Compared with 1995, the ratios for the central, western, and northeastern regions went down by 0.15, 1.0, and 0.06 percentage points respectively in 2004. This is an indication that the contribution of foreign direct investment declined somewhat in all regions after 2000. But the fall was more dramatic in the eastern region. Experience tells us that foreign direct investment can better promote the growth of the regional economy than domestic investment does. That is why the decline in foreign direct investment dampened the economic growth advantage of the eastern region over the central and western regions and hence eased the widening gap of regional disparities.

4. Less developed regions saw infrastructure construction advance rapidly.

Infrastructure development is a crucial factor for the speed of development of a regional economy. The development of infrastructure—including transport, communications, water control, and power infrastructure—can raise productivity, reduce costs, and help attract foreign investment and accelerate economic development. A region's geographic location, transport conditions, and telecom facilities strongly indicate disparities in regional economic development, and a policy in favor of balanced infrastructure development can help economic convergence among different regions. In the PRC, the infrastructure in the eastern coastal region has always been better than that in inland regions because of historical, economic, and geographic disparities. Since the beginning of the reform and opening up of the economy, the development of infrastructure in the eastern coastal region has also been faster than in the rest of the country. In recent years, however, its speed of growth in the eastern coastal region has declined somewhat because the infrastructure there is already relatively complete. At the same time, the central and western regions have seen their infrastructure develop faster than the eastern coastal region because of massive infrastructure construction.

Take highways as an example. Table 4 [ PDF 131.7KB | 1 page ] indicates that in the second half of the 1990s, the speed of growth in highways was almost the same in the eastern, central, and western regions. The only exception was the northeastern region. After 2000, however, while highway development in the eastern region remained fast (6.7 percentage points higher than in 1994–1995), it was faster in the central, western, and northeastern regions. In 2000–2004, the highway development rates for these regions compared with that of the eastern region were 26.4 percentage points, 18.8 percentage points, and 20.9 percentage points higher, respectively. This is an indication that disparities in infrastructure between the different regions in the PRC have begun to narrow. This will have a long-term positive impact on improving the investment conditions and increasing the potential for economic growth in the less developed regions and will inevitably help narrow regional disparities.

5. The central government's attention to and policy measures on agriculture-related issues in recent years also helped ease regional disparities.

In the PRC's less developed regions, a majority of the local population generally lives in rural areas. The 2000 census indicates that rural people accounted for more than 70 percent of the total population in the central and western regions, a figure far higher than that in the eastern region. For this reason, the support for peasants and agriculture was in fact more helpful to the central and western regions and indirectly helped narrow regional disparities. In recent years, the central government has introduced some policy measures to alleviate burdens on peasants. These measures include the experimental reform of rural taxes and fees that began in 2000. Ministry of Finance statistics indicate that the experimental reform covered 620 million rural people or three-fourths of the PRC's total rural population. The lowering of the agricultural tax rate, the reduction of fees required of peasants, reform of the collection and management of educational funds, and issuing of direct farming subsidies to the peasants have gradually alleviated the burdens on the peasants. Agricultural taxes were waived in more provinces and autonomous regions in 2004, and completely abolished throughout the country in 2005. According to a study (Zhu et al., 2003) tracking the experimental reform of rural taxes and fees and the reform of township and village management issued by the Ministry of Agriculture, burdens on peasants were reduced by about 45.8 percent in 2002 in the 20 provinces that carried out the experimental reform of taxes and fees.

D. An empirical analysis of determinants of provincial economic growth

In order to further our understanding of changes in regional disparities, we will conduct a quantitative analysis of determinants of regional economic growth. Using provincial economic growth data, we will investigate the main factors that influence regional economic growth and regional disparities.

The basic estimation method of regional economic growth is regression analysis based on a growth equation derived from the new classical growth model (Barro and Sala-I-Martin, 1995). The basic equation employed here is:

where T stands for the length of time interval;⁶

y_i,t represents provincial per capita GDP in year t (calculated in terms of constant prices in 1978);

X stands for factors influencing regional economic growth;

β is coefficient; and υ and ε are residual errors.

Based on results of similar studies, we choose to examine the effects of factors including fixed asset investment rate, average education level, development level of infrastructure, regional marketization degree, urbanization rate, and share of regional government expenditure in GDP on economic growth. The final regression equation is:

where t (= 1991, 1994, 1997, 2000, and 2003) is the beginning year of each time interval;

g_i,t represents average growth rate of per capita GDP of province i during the time interval beginning with year t;

Inv_i,t stands for fixed asset investment rate of province i in year t;

Edu_i,t stands for average education level of province i proxied by the share of population with education levels of junior high school or above to population aged six and over, which reflects the impact of human capital level on the economy;

Inf_i,t represents development level of infrastructure of province i proxied by railway density in year t;

Soe_i,t is the share of gross industrial output value of state-owned enterprises in total industrial output value of province i in year t, which represents regional marketization degree,⁷

Urb_i,t is the urbanization rate; and

Gov_i,t is the share of regional government expenditure in GDP.

Taking into account the fact that the PRC’s economic system has undergone significant changes since its reform and opening up, especially the establishment of a market-oriented economic system after the 1990s, we choose samples between 1991 and 2005, with the time interval of three years, i.e., 1991–1993, 1994–1996, 1997–1999, 2000–2002, and 2003–2005. We choose the explanatory variable’s value in the beginning year of the periods rather than average value in three years to overcome the problem of endogeneity. Due to data deficiency of Chongqing, we merge the data of Chongqing and Sichuan and thus get the panel data of 30 provinces.

Now we will conduct the regression analysis. First, we have to perform the Hausman test to choose between a fixed effects model and a random effects model. Also, we have to deal with autocorrelation in residual errors due to the fact that autocorrelation usually exists in time series economic data. Table 5 reports the results assuming autocorrelation and no autocorrelation in residual errors. Based on the model results, we choose a fixed effects model with disturbance term AR(1) (i.e., assume ε_i,t in equation 2 satisfies where ⁸

that is Model I in Table 5 [ PDF 152.6KB | 1 page ].

The results presented in Table 5.5 can shed light on the effects of the above factors on regional economic growth and thus have important policy implications for reducing regional disparities. Based on the regression results, the following key observations should be considered in efforts to form such policies.

1. Fixed investment rate is an important factor driving regional economic growth in the PRC. An increase of one percentage point of fixed investment rate in the beginning year of the time intervals will lead to a rise of 0.072 percentage points in average economic growth rate during the whole time interval. This figure is similar to the estimation of 0.073 percentage points by Cai et al. (2002) but lower than the estimation of 0.2–0.35 percentage points by Demurger (2001). The PRC’s relatively high fixed investment rate can exercise an important influence on regional economic growth. The regional fixed investment rate in the PRC is not completely endogenously determined. Local governments can affect the investment decisions of enterprises to some extent and national policies can influence regional distribution of investment (including FDI).

2. The improvement of education levels can significantly promote regional economic growth. According to results shown in Table 5, an increase of one percentage point of the share of people above six years old with education levels of junior secondary school or above in the beginning year of the time interval will raise the regional economic growth rate by 0.14 percentage points in each of the years that followed. In terms of absolute value of the coefficient, the impact of education level on regional economic growth seems to be very large.

3. The improvement of marketization degree can significantly boost regional economic growth. We proxy regional marketization degree with the share of gross industrial output value of state-owned enterprises in total industrial output value. Generally speaking, the bigger the share of state-owned enterprises of one region, the higher local government interference with the economy and the lower regional marketization degree. Therefore, the coefficient of marketization degree should be negative. According to our regression results, the coefficient of Soe is statistically significant and negative, indicating that for those regions with big shares of state-owned enterprises in the beginning year, their economic growth rate will be slower in the years that followed. That is, high regional marketization degree can promote economic growth, which is consistent with results of Cheng and Yi (2000) and Lin and Liu. (2003).

4. There is a significantly positive correlation between the development level of infrastructure and regional economic growth. We use the index of railway density to measure the development level of infrastructure and find that the coefficient is positive, which is consistent with results of Demurger (2001). The impact of infrastructure level on regional economic growth is relatively large. In Shanxi province, for example, an increase of 0.0046 km per km2 of railway density from 1990 to 2002 is accompanied by a rise of 1.38 percentage points of regional economic growth rate.

5. The share of regional government expenditure in GDP (which reflects government interference with the economy) has a positive impact on regional economic growth. An increase of one percentage point in the share of regional government expenditure in GDP can increase the regional economic growth rate by about 0.12 percentage points.

6. Urbanization level exerts a significantly positive impact on regional economic growth. An increase of one percentage point in the urbanization rate in the beginning year can step up the regional economic growth rate by about 0.13 percentage points in the years that followed. Other previous studies such as Lu and Chen (2004) also showcase similar results.

7. Significant conditional convergence existed among regions in the PRC in the period 1991–2005. That is, after controlling other factors, the economic growth rate of more developed regions was slower, which is confirmed by the negative coefficient of 0 ln( ) y . The evidence of previous similar studies seems to be mixed. Some studies (Cai et al., 2002; Lin et al., 2003) show that there exists conditional convergence among regions in the PRC while others (Wang, 2004) find that such convergence does not exist.

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