An article published in the current issue of China Economic Review is the first to evaluate Chinese economic growth using city-level data and to identify factors that explain regional differences in growth rates. The study, "Growth and regional inequality in China during the reform era," was conducted by Hamilton College Professors of Economics Ann Owen and Derek Jones and Professor of Government Cheng Li.
"The impact of foreign direct investment is one of the key drivers of growth in Chinese cities. And it is governmental policies that promote openness in targeted cities, thereby creating environments more conducive to production and more attractive to foreign investment," according to Hamilton College economics professor Ann Owen.
"Growth and regional inequality in China during the reform era" reviews data from 200 cities for a 10-year period. The paper reveals growth rate differences of more than 24 percentage points between the cities, a gap much larger than previously assumed. The average growth rate of per capita income was 8 percent per year. The richest city had a per capita income 50 times greater than that of the poorest.
Owen says, "The government awarding of special economic zone (SEZ) status or open coastal city status enhances growth substantially. These policies create an environment responsive to market forces, encouraging foreign direct investment that is associated with higher growth rates," according to Owen. Cities in the eastern portion of the country were more likely to be the beneficiaries of these special policies and grew at a rate almost four times faster than other areas.
While there is a large body of work on China's economic growth, this is the first to examine city-level data. The researchers were able to get a more accurate perspective on the economic situation since government economic policies are enacted at the city level. They found that aggregated province-level data disguised important economic relationships.
