Abstract
This paper presents a simple model to study the reasons for China's regional inequality and proposes a few long‐term policies for solving the problem. Based on an empirical estimation, it is shown that the great regional inequality of the recent years is caused by high disparities m investment between the provincial capital, in population growth and in regional relative price indices. It is argued that such regional inequality could be reduced in the long term by adjusting China's coastal‐favorite regional development strategy, by partially relaxing strict regulations on inter‐regional migration, and by driving further forward the transformation towards a mature market economy.
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