Investigation into China’s inter-provincial inequality in income per capita : the local solow growth model approach

Abstract

The persistent income inequality across China has led to the emergence of tremendous literature. However, most of the studies ignores the inherent heterogeneity that can yield different findings. Allowing provincial parameter heterogeneity, this paper employs local Solow Growth Model on China’s provincial data from 1982 to 2009, to investigate the regional inequality of income per capita in China. By taking into account the provincial heterogeneity, we find relaxation of the assumption that all provinces possess identical production function significantly improves the fitness of Solow Growth Model. Based on the empirical results, this paper demonstrates that severe heterogeneity exists in China, and the pattern of heterogeneity is worth studying. Moreover, this paper finds that accounting for heterogeneity leads to different results from most studies on China’s inter-provincial convergence, that evidence of unconditional convergence is stronger than of conditional convergence.