Measuring the dynamics of provincial real economies in China

ABSTRACT

This paper uses a set of provincial macroeconomic variables and the panel VAR method, which contains cross-sectional dynamic interdepence and time-varying coefficients, to measure the quarterly dynamics of the real economies of Chinese provinces. We find that provincial GDP and industrial value-added series may deliver limited business cycle information and that Chinese provinces have experienced overall divergence and sub-club convergence in recent years.

KEYWORDS:

• Panel VAR
• Chinese economy
• economic measurement
• business cycles

JEL CLASSIFICATION:

• E01
• E32
• C32
• C33

Acknowlegement

We thank the editor and two anonymous referees for their useful comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

² Mooi, Sarstedt, and Mooi-Reci (2018) compare PCA and latent factor methods theoretically and quantitatively and claim that PCA and latent factor approaches are quantitatively equivalent only if the sample size is large enough.

³ Our model specification and estimation strategy strictly follow Canova, Ciccarelli, and Ortega (2007), Canova and Ciccarelli (2009), and Canova and Ciccarelli (2012). A detailed discussion of the model features, estimation strategies, and technical guidelines can be found in these papers.

⁴ The recent literature often considers satellite night-time light data but the two possible data sources are either annual in frequency or are too short of a series.

⁵ The standardization of growth rates can also minimize the effects of province size in evaluating economic dynamics.

⁶ Electricity consumption, highway freight volume, and commercial paper financing are not collected or reported by local governments, while the local governments usually accurately report their fiscal revenue in order to get fiscal support from the central government. See Chen et al. (2019).

⁷ Net exports in the national accounts come from customs data, while the net exports of each province are simply the statistical gap between the GDP values calculated via the production and expenditure methods. There are no actual data to support the estimation of the net exports of each province.

⁸ The provinces are ordered according to their geographic locations; therefore, any sub-square along the diagonal can be considered a geographic subgroup such as Northern China, Eastern China, or Southern China.

Additional information

Funding

This work was Supported by the National Natural Science Foundation of China through [Grant 71903049].