Measurement of Regional Economic Disparity among Eastern, Central and Western Ch

Abstract. From the perspective of regional economics and in the light of classical theories and investigative actualities of regional economic disparity at home and abroad, the composite indicators including per capita index (per capita GDP and per capita income level of citizens), static comparative index (relative difference and absolute difference) and coefficient index (coefficient of variation and coefficient of range) are applied to measure the economic disparity among eastern, central and western China from 2005 to 2010, which indicates that the regional economic disparity at this stage is still the core issue for regional economics research and economic development.

Key words: Eastern China; Central China; Western China; Economic disparity; Measurement

1. Theoretical basis of regional economic disparity

As a ranged space occupied by human for economic activity, region is a composite of several area units in accordance with homogeneous and functional criteria; as different regions have been developing at different speeds, the regional economic disparity comes into being, which is the non-equalization of economic development level among various regions throughout the country in a certain period. Regional economic disparity is an important research field and a significant theoretical component of regional economics.

1.1 Foreign classical theories

The regional economic disparity was studied very early in foreign countries, mainly distributed in growth theory of economics, trade theory, development economics, location theory and regional economics, etc. among which the best-known is the polarization theory in regional economics about the unbalanced growth of regional economy. The polarization theory developed under the condition that the neo-classical theory with increasingly exposed defects was criticized and questioned, whose methods and assertions were contrary to the neo-classical regional balanced development theory. In the 1950s, French economist Francois Perroux first proposed the growth pole theory by use of motivation effect and de-boost effect; soon afterwards, French economists Boudaille and Lasuen enriched and developed the theory, emphasizing the spatial characteristics of growth pole and placing the innovation at the center with the intensification of agglomerative advantages. The growth pole theory was known as the French School of regional development theories. As two key representatives of polarization theory, Swedish economist Myrdal proposed the cumulative causation theory and American economist Hirschman proposed the unbalanced growth theory, respectively applying the diffusion effect with backwash effect and the penetration effect with polarization effect to illustrate the interaction among different regions. Similar to the polarization theory, Friedman’s center—periphery theory based on dependency theory of Latin American School held that the regional economic development tended to reach integration by leading and governing the peripheral area with central cluster of innovations or diffusion of resources. In addition, the inverted U-theory of Williamson explained relations between the regional disparity degree and the economic development level.

1.2 Domestic research progress

The regional economic disparity has been studied for a short period in China; the most important research in early days was the “push-by-step theory” and “flying-geese theory” in the mid-1980s, and current study on regional economic disparity includes: division of regions in China, study on causes of formation of regional disparity, study on selection and measurement of index system of regional disparity, political solutions for regional disparity.

Regarding the regional division, there is basically no objection for the dividing of three major regions of China (eastern, central and western China) among domestic scholars; however, the specific forms and results of division are not the same. For instance, in 2000, SDPC (State Development Planning Commission) Macroeconomic Research Office divided Guangxi Province into the eastern China and Inner Mongolia into the central China, while some scholars divided the two provinces into the western China, which results in discrepancy during the comparison of some data and findings.

There have been intensive studies on causes of formation of regional disparity: Shen Kunrong et al. (2001) maintained that the unbalanced distribution of direct investment from foreign merchants in different regions widened the gap between eastern and western China. Lin Yifu et al. (2003) believed that the gap of development levels among different regions was caused by non-conforming degree of comparative advantage determined by the stock collocation of production factors and factor endowments. Peng Zhaohui and Yang Kaizhong (2005) established the spatial equilibrium model for the evolution of regional economic disparity, pointing out that the human capital accumulation and transfer cost are the crucial reasons for the regional disparity. Besides, from perspectives of physical environment, geographic location, macroeconomic policy, regional economic policy, economic system, economic liberalization, distortion of factor market, etc., Lu Dadao et al. (1999), LI Xiaojian, et al. (2000), Guo Tengyun et al. (2001), Gao Zhigang (2002), Liu Xiaming (2004) and other scholars performed an analysis on the reasons for the changes of China's regional economic disparity. Zhang Dunfu and Qin Chenglin (2001) held that the disparity emerged for a number of reasons including the national economic policy, regional economic structure, investment, human capital, regional economic relations, regional economic foundation, etc.

The absolute difference may be measured by index analysis methods of range, dispersion and standard deviation; while the relative difference may be measured by several methods including: Gini coefficient analysis, derived from Lorentz curve for the measurement of wealth and concentration of population, which was adopted by Liu Xiaming (2004), Xu Zhaoyuan and Li Shantong (2006); Theil index analysis, first proposed by Theil in 1967 for the study of income gap among different countries, which is adopted by Cai Fang and Du Yang (2000), Li Guoping (2003), Wang Shaoping and Ouyang Zhigang (2007), Sun Xuli (2009), etc.; in addition, the minimum and maximum values, coefficient of variation, β convergence coefficient, o convergence coefficient, ATKINSON index, GEN index, etc. To fully reflect the status of regional economic disparity, given an overall consideration of various factors affecting regional development, a comprehensive and concise evaluation index system is built. In the current study, most domestic scholars analyze and compare the regional economic disparity by PCA (principal component analysis), clustering analysis, integrated assessment method, multi-level and multi-objective fuzzy comprehensive evaluation method, etc.

2. Measurement of regional disparity among eastern, central and western China

China's regional economic disparity dates back to the earliest days of liberation; at that time, more than 70% of China's industries were concentrated in eastern coastal China with an area of less than 12%, where the industries were mainly concentrated in a few major cities in the northeast and southeast coast like Shanghai, Tianjin and Guangzhou; apart from Wuhan, Chongqing and several other industrial cities along the river, there was hardly any industry inland. Southwest and northwest China covering 68% of the whole country area only occupied 9% of China's industrial output. From the late 1950s to the early 1960s, China consisted of two regions: coastal area and inland; from the early 1960s to the mid 1970s, in line with different geo-strategic locations, China was divided into first-tier, second-tier and third-tier regions and to alleviate the regional disparity, exploitation of the Western regions were carried out twice, one in the course of “first five-year plan” and the other in the course of “third-tier construction”.

Since the reform and opening up, China was divided into eastern, central and western regions; in 1990s, along with the rapid economic growth, the imbalance of regional economic development was increasingly significant, manifested chiefly by the regional economic disparity of developed eastern coastal China and underdeveloped Midwest. The eastern, central and western regions mentioned here were divided based on the stair-stepping condition in economic development: the eastern regions including 10 provinces and municipalities which are Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong and Hainan ; the central region including 6 provinces which are Shanxi, Anhui, Jiangxi, Henan, Hubei and Hunan; the western region including 9 provinces and municipalities which are Chongqing, Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang. The economic disparity of the three regions keeps rising in a state of divergence: with a better historical foundation for the development, the eastern region is provided with favorable conditions for business and trade and superior geographical advantage, belonging to the developed areas; located in the hinterland, the economically backward western region is provided with inadequate infrastructure in slow development, belonging to the underdeveloped areas; while the central region is in the middle position with the economic development conditions inferior to those of eastern coastal areas but superior to those of western areas.

The regional disparity concerns the ability and power of sustained development of various regions, concerns the economic cooperation and conflicts among different regions, and concerns the state overall development strategy and policy layout as well as the formulation and implementation of major policies. Moderate regional gaps are helpful to promote the economic growth in backward areas to some extent; however, excessive disparities would result in the “Matthew Effect” (The rich get richer and the poor get poorer) according to the viewpoint of “development tendency” in regional economics. Regional disparity is not only a purely economic issue but also a vital social problem affecting social stability and people's well-being. From both the theoretical level and the policy-making level, it’s critical to study and coordinate the regional economic disparities. Several indexes listed below are applied to conduct the measurement for the regional economic development and the disparity degree in the past six years from 2005 to 2010.

2.1 Comparison of per capita GDP of eastern, central and western China

Comparative study of absolute difference and relative difference is adopted for the comparison of per capita GDP of eastern, central and western China. The absolute difference is evaluated from three aspects including specific value, standard deviation and range of the annual per capita GDP; while the relative difference is evaluated from three aspects including index of variation, coefficient of range and growth rate of the annual per capita GDP. As shown in Table 1:

The regional absolute difference increases with the increase of the standard deviation and range; the greater regional relative difference increases with the increase of the coefficient of variation and coefficient of range, getting increasingly extreme.

It can be seen from Table 1 that the regional disparity among eastern, central and western China is quite distinct: from 2005 to 2010, absolute values of per capita GDP of the three major regions varied greatly, ranking in the order of eastern China, central China, and western China. The Mideast lagged behind the eastern China at a large scale for a long period, and viewing from the standard deviation and range of per capita GDP, the situation worsened, which indicates the regional absolute difference of China has been expanding.

Nevertheless, it can be seen from the Table that the coefficient of variation and coefficient of range of per capita GDP gradually reduced from 2005 to 2010, showing that even if there is a huge economic disparity among the three regions and the absolute difference has been expanding, the regional relative difference is narrowed year by year, especially for the improvement of extreme polarization of eastern and western regions.

The above conclusion can be also drawn from the annual growth rate of GDP: for the last six years, despite the fact that the eastern region still assumed absolute superiority in absolute numbers and high-level GDP, its pace of development lagged behind the central and western regions. It was the policy of rise of central region and development of western region that contributed to the rapid development of relatively backward areas in the Mideast, which was also one of the forces to narrow the regional differences gradually, playing a vital role in the coordinated development of regional economy in China.

2.2 Comparison of disparity in regional industrial structure among eastern, central and western China

It can be seen from the figure that: there is a distinct disparity in industrial structure among eastern, central and western regions: the east occupies a larger proportion in all industries, especially in the secondary and tertiary industries; the industrial structure of eastern region is reasonable, presenting the structure mode of “tertiary, secondary, primary” with developed non-agricultural industries; while the central and western regions are characterized by the traditional industrial structure mode of “primary, secondary, tertiary” dominated by the agriculture with low economic benefit and low rate of return on investment, with non-agricultural industries below the national mean level, which is unreasonable and needs optimization.

Conclusion can be drawn from the Figure that, from 2005 to 2010, the changes in proportion of primary and secondary industries in the Midwest were insignificant and the backward situation basically did not get improved; however, the industrial development was attached great importance: with the rapid development in secondary industry, the proportion increased. The diversity in industrial structure has widened the economic gap between the east and the Midwest. From the indicators, it can be seen that the harmonious development of regional economy in China will take time.

2.3 Gap among people’s income of eastern, central and western China

Affected by the disparity in per capita GDP of different regions, there are gaps between urban residents’ income and rural residents’ income, which is measured mainly by range and coefficient of range. It can be seen from the figure that: for the last six years, people in the eastern China have achieved the highest income, the central China followed and then the lowest income for the western China. Conclusion can be drawn therefrom that there is a significant discrepancy among the three economic regions in China.

From Fig. 2 and Fig. 3, it can be seen that, in 2005, the range between urban residents’ income of eastern and western China was 4,592 with the coefficient of range as 1.52; the range of rural residents’ income was 2,341 with the coefficient of range as 1.98. In 2006, the range of urban residents’ income was 5,239 with the coefficient of range as 1.54; the range of rural residents’ income was 2,600 with the coefficient of range as 2.00. In 2007, the range of urban residents’ income was 5,665 with the coefficient of range as 1.50; the range of rural residents’ income was 2,827 with the coefficient of range as 1.93. In 2008, the range of urban residents’ income was 6,232 with the coefficient of range as 1.48; the range of rural residents’ income was 3,080 with the coefficient of range as 1.88. In 2009, the range of urban residents’ income was 6,740 with the coefficient of range as 1.47; the range of rural residents’ income was 3,340 with the coefficient of range as 1.88. In 2010, the range of urban residents’ income was 7,467 with the coefficient of range as 1.47; the range of rural residents’ income was 3,725 with the coefficient of range as 1.84.

As can be seen from the range of people’s income from 2005 to 2010, the absolute income gap has been increasingly widened, as shown in Fig. 2 and Fig. 3, which directly affecting the consumption level of urban and rural residents. Nevertheless, viewing from the coefficient of range, the relative gap of people’s income has been narrowed to some degree, which indicates the income discrepancy in China has been slightly improved.

2.4 Gap among fiscal revenue of eastern, central and western China

From the prospective of fiscal revenue level, a state of disequilibrium presents among the three regions. The eastern region occupies over 50% of the national fiscal revenue and a small proportion for the Midwest. It can be seen from Figure 4 that an extremely wide revenue gap exists between the Midwest and the east, only more or less 40% in total for the Midwest, which turns into a significant showing of regional economic disparity.

It also can be seen that, from 2005 to 2010, there was a small decline in fiscal revenue percentage of the eastern region and a small rise for the Mideast.

3. Conclusion

3.1 Economic disparity among eastern, central and western China

The current regional economic disparity of China has been measured with the aforementioned economic indicators by the quantization of six years of economic development in eastern, central and western regions from 2005 to 2010, which indicates that, from 2005 to 2010, the regional economic development showed the constant unbalance and the increasing absolute difference while the polarization of relative difference had been reduced. In fact, the economic disparity among the three regions, especially between the eastern and western China, is still an important issue of economic development, which is the research focus of China's regional economics. More efforts are required for the coordinated development of regional economy.

The index system is established from the reality, with the application of composite indicators including per capita index (per capita GDP), static comparative index (relative difference and absolute difference) and coefficient index (coefficient of variation and coefficient of range) with all data derived from the past China Statistical Yearbooks. There is extensive analysis related to the regional economic disparity; however, due to the restriction of various subjective and objective factors, a few indicators are listed in the paper to demonstrate some aspects of the economic disparity. If the comprehensive reflection of the system is needed, an integrated index system shall be established, proceeding from two aspects including the economic development investment and economic development effect with the establishment of several sub-items: the economic development investment mainly reflects the economic condition while the effect examines the degree of coordination among society, economy, resources and environment.

3.2 Causes of regional economic disparity

Generally, the regional economic disparity among eastern, central and western China is caused by: “Matthew Effect” (The rich get richer and the poor get poorer) because of the backwash effect larger than the diffusion effect, regional location, differences between advantages and disadvantages of natural areas represented by climate condition, financing differences due to the high rate of return on capital in the eastern China (only few funds flowing into the western China or even funds from the west flowing back to the east), human capital differences owing to the backward economy, intellectual resource index and scientific and technological level, implementation of the national macro-policies on regional economy, etc.

3.3 Methods to narrow the regional economic disparity

To narrow the regional disparity, a most critical step is to promote the economic development of backward areas in central and western China mainly by the system innovation: establishing the innovation systems with respect to industrial policy, government administration system, investment and financing system, human resources development and ecological compensation mechanism. Next, according to the theories of “polarization” and “center—periphery” in regional economic disparity, implement the growth pole strategy to realize the objective of point-to-area, step-by-step and mutual development by means of polarization and diffusion effect. Finally, enough attention shall be paid to the regional cooperation and mutual development, eliminating the vicious and inefficient competition, motivating the mutual assistance in industries, resources and technology on the premise of mutual benefit, activating the innovative guidance for the coordinated development of the eastern and western regions and constructing the new mode of harmonious regional relationship.

4. Acknowledgement

Foundation Porjects: Staged Achievements of “Study on Technology Convergence in Coordinated Development of Regional Economy (12BJY023)” supported by National Social Science Foundation of China;

Achievements of Tendering Subject on Governmental Decision Research of Henan -- “Study on Henan’s New Industrialization Promoted by Technology Innovation （2012B511）”.

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