How Integrated Have Chinese Provinces Been?

This paper analyzes the pattern of provincial economic integration in China for the period 1991−98 by means of an errorcomponents model that decomposes provincial sectoral real valueadded growth into common national effects, industry-specific effects and province-specific effects. We find significant comovements in the long run although province-specific factors still account for one-third of the variance of real output growth in the short run. After filtering out province-specific effects, we construct a hypothetical economy where provincial factors are removed. Most strikingly, we are able to trace out the nation’s business cycle during the 1990s using the disaggregate pooled dataset. JEL Classifications: E32, F15, O18, O53.