Economic Structure and Regional Disparity in China: Beyond the Kuznets Transition

Abstract

The literature on regional change in post-reform China suggests a consistent pattern of increasing regional disparity during 1990s. This paper explains disparity through the lens of industrial transition as reflected in the three major economic sectors, agriculture, manufacturing, and services from 1995 to 2004. Increased economic output in China has been accompanied by dramatic changes in employment structure at both the national and regional level. Changes at the provincial level have been driven by national trends and changes of industry mix as well as regional characteristics. The importance of industry mix and regional competitive advantage varies across sectors and has different impacts on employment and output. This analysis indicates that employment loss in agriculture in the western and central regions has not been made up by the increases in other sectors. The differential rate of transition in economic structure toward the secondary and tertiary sectors has contributed to the widening gap between the coastal areas and the other parts of the country. Our exploratory spatial analysis with regard to the extended shift-share components indicates significant spatial autocorrelation both at the sectoral and provincial level. The necessity of integrating spillover effects into any policy intervention is demonstrated. Then sensitivity analysis is carried out to examine how the selection of two spatial weight matrices will influence the decomposition results.

Keywords: Industrial Structure, Regional Disparity, Sptial Analysis, China