In a recent paper Pedroni and Yao (2006) present strong evidence suggesting that Chinese regional output is diverging, a result that flies in the face of the current opinion of Chinese policymakers. This paper provides an in-depth analysis of the reasoning behind this finding. Our main result is...

China’s unbalanced growth strategy has seemingly fostered growing inter-regional growth disparities and there is little evidence of wealth trickling down from richer provinces to poorer provinces. Given pronounced and frequent inter-regional short-term fluctuations in economic growth, standard...