What Factors Can Explain the Rising Spatial Disparity in Economic Activities in China?

Abstract

This paper explores the impact of spatial externalities in shaping China's economic geography by establishing a theoretical framework that contains regional productivity, trade barriers and local amenities to capture spatial externalities between different regions over time. Combining provincial data on bilateral trade flows with observed information about economic geography during the period 1998–2013, we estimate the distribution and marginal contribution of each explanatory factor. Empirical results suggest that regional labor density and wage are positively related to exogenous productivity and amenities, and negatively related to trade barriers. Meanwhile, variation in the marginal contribution of exogenous productivity and amenities and trade barriers reflects the regional temporal–spatial features in China's recent marketization process. Therefore, the Chinese government should place more emphasis on absorbing advanced technologies and reducing inter-regional market barriers to promote balanced regional development and improve the efficiency of China's spatial resource allocation.