Measurement and analysis of the sources of provincial growth divergence in China (1981-2004)

The regional and provincial divergence in China’s economic growth has attracted extensive and intensive attention, yet the measurement and research on the sources of the divergence is relatively inadequate. Why there is divergence across provinces? What elements have contributed to the divergence and how? Based on growth regression analysis and “counterfactual econometrics”, this paper constructs “counterfactual” relative per capita income of a bunch of factors such as initial income level, physical capital, employment, human capital, infrastructure, openness degree and urbanization, to measure and analyze the contribution of different factors to the β -convergence and σ -convergence across provinces. We find out that infrastructure, human capital and urbanization, although contribute significantly in provincial economic growth, also result in divergence across provinces.