By Liu Yunzhong, Development Strategy and Regional Economy, Development Research Center of the State Council (DRC)

Research Report No 81, 2011

I. Foreword

China's domestic regional economic integration is an important issue dealt with by regional economics and regional policy. The regional economic integration is conducive to adjusting the economic structure, enlarging the size of the domestic market, expanding domestic demand and bridging the regional gap and, at the same time, such integration can also facilitate the spatial optimization of the land and bring forth the sound spatial economic order.

The regional integration can be understood as a state in which conducts of the market entities in different places of an entire region are adjusted by the same supply-demand relations. It can be viewed as a process as well in which the economic boundaries between different regions gradually fade away. Similarly, the process of the domestic regional economic integration also involves a number of stages. The first stage is for infrastructure construction. In this stage, favorable conditions are created for trans-regional flow of products and production factors by making handsome input and by gradually enhancing and eventually forming an infrastructure system, such as the closely-knit transportation and communication networks; the second stage is for gradually expanding regional co-operation. In this stage, geographically adjacent regions eliminate the policy barrier against the flow of products and production factors depending on agreements between governments and, guided and motivated by local governments, regional co-operation constantly improve; the third stage is for institutional construction and integration. In this stage, reasonable relationship frameworks between the central government and the local governments are set up by ameliorating the legal system for safeguarding orderly and effective market competition, so as to eliminate the policy and institutional roots impeding the flow of products and production factors and to realize the domestic regional integration.

This paper mainly deals with how to size up the degree and evolution of the domestic regional integration. Currently, though there have been studies on the degree of the regional economic integration from different perspectives, those studies usually call for a prodigious amount of data and it costs much and takes time to acquire such data. By using the regional economic fluctuations associated method, this paper deals with the degree of the regional economic integration. The data needed are easy to acquire and data frequency is high (usually, there are intact and complete annual data), which is conducive to sizing up the degree of the regional economic integration at regular intervals.

II. Method for Sizing up the Degree of Regional Economic Integration

Sizing up the degree of regional economic integration is a difficult work. Generally, people size up the degree of regional economic integration by figuring price differences, trade contact (such as the transportation volume among the regions) and information exchange (such as post and telecommunications between the regions) among various regions. However, the problem arising from this method is the poor data availability, and it costs much to acquire the data. Therefore, it is hard to take this method as a means for regular observation.

The train of thought presented in this paper is to size up the degree of the economic integration by observing the connection between economic fluctuations in various regions (administrative units at the provincial level). Generally, if the economic connection between the regions is few and far between, the trends and fluctuation patterns for economic growth between various regions will then be determined by internal factors of the regions. Then the economic fluctuations between regions will have their own features and will occur in their own cycles. If the economic connection between various regions is intimate, then the trends for economic growth and the fluctuation features will become consistent. Therefore, the changing degree of consistency in economic fluctuations between various regions can be used to size up the regional economic integration.

By method and figures, the GRP growth and the per-capita GRP growth can be used to observe the fluctuations between various regions. It is important to get to know whether there is a common cycle for both the trends and the fluctuations. The regional economic integration will strengthen with this commonality. Specifically, there are two levels. On the first level, the economic growth rates (such as the GRP growth rate or per-capita GRP growth rate) of various regions will not be decomposed but the related coefficients between the economic growth rates of various regions will be evaluated directly, and the changing degree of the regional economic integration will be recognized by observing changes in related coefficients. On the second level, the data decomposition method will be used to decompose the observable economic growth rates into trend variables and fluctuation components. Then, the change in correlated degrees of the trend variables and fluctuation components will be discussed separately to consider the changes in economic connection between the regions.

Based on this train of thought, this paper uses the correlated degrees of the economic growth in various regions to reflect the degree of the domestic regional economic integration, whereas the correlated degree is weighed by related coefficients. Thus it can be seen that the method is on the whole simple and clear. Matters relating to the specific calculation include：Time span is given the first place. The time chosen by this paper is the economic growth rates of various regions between 1952~2009, of which a period of 10 years is taken as an interval to calculate related coefficients and to observe the change of the correlated degrees; secondly, the related coefficients between economic growth rates of various regions are directly calculated. By this means, a method for sizing up the degree of the domestic regional economic integration is acquired; thirdly, the economic growth rates of various regions are decomposed into trend components and fluctuation components and the related coefficients of the trend components and fluctuation components of economic growth of various regions are calculated one by one. In this way, two other kinds of methods for sizing up the degree of the domestic regional economic integration are acquired. According to the above-stated principle, the results gained from the calculation of the fluctuation components are more likely to conform to the theoretical requirements; and fourthly, the annual related coefficient indexes between 1991~2009 have been further calculated in this paper, which is a calculation of the index on domestic regional economic integration. What needs to be specified about this index is that what has been calculated in the above-mentioned course is a matrix of related coefficients, which makes it easy to learn about the correlated degrees between provinces (municipalities and autonomous regions), yet the national degree cannot be acquired directly. A national index can be worked out by calculating the sum total of all elements in the matrix before dividing the number of the elements in the matrix¹.

In fact, any method has its strong points and limitations. The strong point of our method lies in the easy access to relevant data. Although the calculation is complicated, the related coefficients can be calculated in a rolling way at regular intervals so as to dynamically observe the degree of the regional economic integration. Yet the drawback of the method is that it uses overly aggregate data. Although the overly aggregate data can provide a general judgment, it may blur many detailed connections, such as the connections in industrial structure and trade structure, etc.

…

If you need the full text, please leave a message on the website.

¹ namely:

, with  being the related coefficient.

Thus, the index on the degree of the domestic regional integration is: