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2017 | OriginalPaper | Chapter

3. Opening Up and Unbalanced Development in the Chinese Regions: Theoretical Thinking and Some Empirical Evidence

Author : Yanqing Jiang

Published in: Towards A Common Future

Publisher: Springer Singapore

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Abstract

This chapter contains a theoretical study of opening up, followed by empirical discussions of the unbalanced development of the Chinese regions. Applying an inframarginal methodology, we build a theoretical model based on the concepts of comparative advantage and transaction efficiency to explain opening up and inequality in developing economies. Our model and accompanying empirical evidence imply that an increase in domestic transaction efficiency reduces inequality within a developing economy while an increase in international transaction efficiency enhances the overall welfare level in a developing economy. These and other results have important implications for China in its policy making.

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previous chapter China’s ‘New Normal’: Explaining China’s Economic Development from Institutional and Marxian Perspectives

next chapter The “Belt and Road” Initiative and Economic Integration

See, for example, earlier studies of Lucas (1988), Grossman and Helpman (1991a, b), Young (1991), Rivera-Batiz and Xie (1993), Yanikkaya (2003) and Sarkar (2007) for more detailed expositions of the potential underlying reasons and mechanisms for such a situation.

See, for example, earlier studies of Wei (1992), Zhang (2001), Dees (1998), Wei and Wu (2001), Wang and Gao (2003), Démurger (2000), Zhang (1999), Buckley et al. (2002), Démurger et al. (2002), Bao et al. (2002), DaCosta and Carroll (2001), Yao and Zhang (2001), Hu and Owen (2003), Zhang (2006), Madariaga and Poncet (2007), as well as more recent studies such as Ouyang (2009) and Jiang (2011).

For the inframarginal methodology and its various applications, see, for example, Cheng et al. (1999, 2000), Yang (1991), Wen (1998), Yang and Zhang (1999), Yao (2002a, b), Sun (2003), Sun et al. (1999, 2003), and Zhang and Shi (2006).

See Cheng et al. (2000) for the details of the mathematical derivations.

\( {k}_0\equiv {\left[\left({a}_x/{a}_y\right)/\left({a}_x^{\ast }/{a}_y^{\ast}\right)\right]}^{1/2} \).

\( {k}_a\equiv {\left[\left({a}_x{a}_y\right)/\left({a}_x^{\ast }{a}_y^{\ast}\right)\right]}^{1/2} \), k _b ≡ (1 − α)L/(αL ^∗), and \( {k}_1\equiv \left(1-\alpha \right)L{a}_y^{\ast }/\left(\alpha {L}^{\ast }{a}_y\right) \).

\( {k}_2\equiv \alpha {L}^{\ast }{a}_x/\left[\left(1-\alpha \right)L{a}_x^{\ast}\right] \).

If k _a = k _b happens to hold, then we have k ₀ = k ₁ = k ₂. This simply implies that under the condition k _a = k _b, the two countries will either be in complete autarky or in complete specialization, depending on the value of the actual k: if 0 < k ≤ k ₀ the two countries will remain in autarky; if k ₀ ≤ k < 1, the two countries will engage in complete specialization according to their respective comparative advantage. M(iia) and M(iib) simply cannot be the general equilibrium structure under the condition k _a = k _b.

Based on results above, it can be shown that in order for this to happen, we have to assume that k ₁ < k < 1 if k _a < (1 − α)L ₁/(αL ^∗) and k ₂ < k < 1 if k _a > (1 − α)L ₁/(αL ^∗).

The detailed derivations are available from the author upon request.

\( {\tau}_0\equiv {\left[\left(1-\alpha \right){a}_y^{\ast }{L}_1/ k\alpha {a}_y{L}^{\ast}\right]}^{1/2} \) and \( {\tau}_1\equiv \left\{{L}_2+\sqrt{L_2^2+4\alpha k{a}_y{L}^{\ast }{L}_1/\left[\left(1-\alpha \right){a}_y^{\ast}\right]}\right\}/\left\{2\alpha k{a}_y{L}^{\ast }/\left[\left(1-\alpha \right){a}_y^{\ast}\right]\right\} \).

\( {\overline{\tau}}_0\equiv {\left[\left(1-\alpha \right){a}_y^{\ast }{L}_1/\overline{k}\alpha {a}_y{L}^{\ast}\right]}^{1/2} \) and \( {\overline{\tau}}_1\equiv \left\{{L}_2+\sqrt{L_2^2+4\alpha \overline{k}{a}_y{L}^{\ast }{L}_1/\left[\left(1-\alpha \right){a}_y^{\ast}\right]}\right\}/\left\{2\alpha \overline{k}{a}_y{L}^{\ast }/\left[\left(1-\alpha \right){a}_y^{\ast}\right]\right\} \).

Relevant data are all available from the issues of the Chinese Statistical Yearbook.

We should note that the regression model in (3.2) does not include a time-variant intercept, nor do we use other regression methods (such as the fixed effects estimator) to obtain the estimates. The reason is that the plain OLS regression we are using produces residuals that contain what we need in them.

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Title: Opening Up and Unbalanced Development in the Chinese Regions: Theoretical Thinking and Some Empirical Evidence
Author: Yanqing Jiang
Publisher: Springer Singapore
Book: Towards A Common Future
Print ISBN: 978-981-10-5591-1

Electronic ISBN: 978-981-10-5592-8

Copyright Year: 2017
DOI: https://doi.org/10.1007/978-981-10-5592-8_3