Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 0435: Using A Trade-induced Catch-up Model to Explain China's Provincial Economic Growth 1978-97

Yudong Yao and Johan Lyhagen ()
Additional contact information
Yudong Yao: Faculty of Economics and Politics, University of Cambridge, Postal: Sidgwick Avenue, Cambridge, CB3 9DD, UK
Johan Lyhagen: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: This paper attempts to make an innovative contribution to the growth literature by proposing a trade-induced catch up model in which imitation benefit is explicitly modelled and trade knowledge spillover is considered. The resulting income dynamics is in the error correction form. The Pooled Mean Group dynamic heterogeneous panel data estimator (Pesaran and Shin, 1997) is used to empirically implement the error correction catch-up dynamics. The application is to China's provinces during the reform period 1978-97. The main findings are: there is a positive long-run relationship among per capita GDP, per capita capital and per capita trade, which can account for China's economic growth miracle during the last two decades. Moreover, the trade knowledge spillover benefits disproportionately to individual provinces and thus cause significant differences of growth growth across the provinces.

Keywords: Growth; dynamic panel

JEL-codes: C22; C23; F14; O11

41 pages, February 22, 2001

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