China’s regional gap and supply-side structural reform: endogenous growth in a transition period

DENG Zhongqi GAO Tingfan ZHU Feng

【Abstract】Since 2013, there has been a new trend in China’s economic geography: the gap between the northern and southern regions is gradually widening. The GDP, GDP per capita, growth rate, and production efficiency are all lower in the northern region than in the southern region, and there has been no obvious trend of the gap narrowing. This study’s statistical analyses identified two stylized facts about the north-south gap: the “2013 phenomenon,” when in the absence of major economic events, the gaps in the economic aggregates and growth rates between the north and the south widened suddenly; and the “2016 phenomenon,” when the gap between the north’s and the south’s economic aggregates widened further, the gap in total factor productivity (TFP) began to narrow. Few studies have used theoretical or quantitative analyses to clearly explain these differences between the north and the south or their underlying causes. This study fills this gap. Reviewing the history of economic growth since the founding of the People’s Republic of China, this study found that the underlying cause of the current gap between the north and the south is the transformation of the economic growth pattern. Using an iterative method based on the slack-based measure-directional distance function (SBM-DDF), we found that from 1998 to 2018, capital, labor, energy, and TFP were responsible for 74.7%, 2.1%, 14.8%, and 8.3% of economic growth, respectively. It is indisputable that China’s growth miracle has come from this capital-driven economic growth pattern. In the 21st century, the transformation of the south has been relatively successful, whereas the transformation of the north has been relatively unsuccessful. Under the shock of the 2008 global financial crisis and supply-side structural reform pressure, the north has been compelled to change its growth pattern, and has thus suffered more than the south. On the basis of this insight, this study empirically determined that the widening gap in 2013 was the result of the governmental economic stimulus plans that postponed the problems of 2008 to 2013. In the absence of economic transformation and upgrading in the northern region, the north-south gap would have appeared eventually; the global financial crisis was simply an accelerant, and the economic stimulus plans created a temporary isolation zone. Transformation is the only way forward for China’s economic development. Nonetheless, it has been unsuccessful since the 1980s. After the economic stimulus of 2008, the old model of extensive growth was re-adopted, especially in the northern region. Endogenous growth in China then picked up until the launch of the supply-side structural reform at the end of 2015. This conclusion is verified by our empirical evidence. As the northern region had reached the point where it had to change, the supply-side structural reform had a stronger effect on the endogenous growth of the northern region and thus narrowed the north-south gaps in TFP and the endogenous growth rate. However, an investigation of the spatial distribution of micro innovative enterprises revealed that the significant effect of the reform in the north is mainly due to the fact that “more problems are easier to get rid of,” and it is not easy to maintain a long-term endogenous growth in the north. Given the above findings, this study made the following suggestions. First, the government needs to continue its supply-side structural reforms. Second, the government must further promote intensive urbanization and industrial upgrading. In these areas, the southern region has taken the lead and obtained first-mover advantage. Third, the government must pay more attention to the agglomeration of enterprises, especially innovative enterprises. The northern region cannot rely entirely on market-led resource allocation, which, under the current economic geography pattern, would lead to the Matthew effect between the north and the south and the siphon effect of factors. Local governments should improve the business environment and enhance services.

【Keywords】 north-south economic gap; supply-side structural reform; economic growth pattern; endogenous growth;


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Vol 55, No. 10, Pages 22-37

October 2020


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