Measuring divergence in provincial growth in China: 1981-2004

Provincial income disparity in China has been increasing with rapid economic growth, yet the measurement of the causes of the divergence is relatively inadequate. Based on growth regression analysis and “counterfactual econometrics”, this paper constructs “counterfactual” relative per capita income with consideration of several factors such as initial income level, physical capital, employment, human capital, infrastructure, degree of openness and urbanization. We then measure different factors' contribution to β-convergence and the σ-convergence across provinces. We find out that while contributing significantly to economic growth, different infrastructure, human capital and urbanization rates also result in provincial divergence.