A panel data approach to the income convergence among Mainland China, Hong Kong and Macao

Abstract

This paper provides empirical evidence in support of income convergence among Mainland China, Hong Kong and Macao in the postreform era of Mainland China. Adopting the multieconomy income convergence model and employing the panel unit root testing techniques, this paper finds that relative incomes of Mainland China, Hong Kong and Macao have no tendency to deviate from one another in the long run. The occurrence of income convergence among these Chinese economies can be attributed to rapid growth on the Mainland China and Macao sides but relatively sluggish performance of Hong Kong in recent years. Macao can be regarded as playing a catalytic role in this long-run income convergence process. The finding of convergence indicates promising prospects for deepening economic cooperation and integration among the Chinese economies for their long-run sustainable economic growth.

Keywords:

• China
• income convergence
• panel unit root

JEL classifications:

• C33
• O53
• R11

Acknowledgements

We would like to thank Fung Kwan and two anonymous referees for valuable comments and suggestions that led to substantial improvement of our paper.

Notes

1. These figures are taken from various issues of the China Statistical Yearbook.

2. This generalizes the ARMA (2,0) process used in Carlino and Mills (1993).

3. These figures are based on the 2006 data from the China Statistical Yearbook.