Governmental Strategic Arrangement, Second Nature Advantage, and China's Provincial Export Disparity

Abstract

This paper studies the cause of China’s provincial export disparity, especially the difference among coastal provinces. Both time-invariant and time-variant factors are studied. The paper estimates the effects of time-invariant factors on the export orientation of the economy. It argues that the China’s central government’s strategic arrangement in choosing open cities in the 1980’s begets a “second nature” advantage for agglomeration of export-oriented economy. The estimated effects of the governmental strategic arrangement provide the key explanation for provincial export disparity among coastal provinces and a quantitative evaluation of the effectiveness of such arrangement. The impact of time-variant factors is estimated as elasticity. The yearly effects show that initially export from coastal provinces substituted export from inland provides and then penetration occurred to take advantage cheap resources and labor in inland.