How does inter-provincial trade promote economic growth? Empirical evidence from Chinese provinces

Abstract

In the face of complex domestic and international situations, the influence of domestic trade on economic growth has been paid more and more attention by the academic community while we still know little about its internal mechanism. From the perspective of China’s inter-provincial trade, based on the panel data of 29 provinces (municipalities and autonomous regions) in China from 2000 to 2021, this paper studies the impact of inter-provincial trade on economic growth by using a two-way fixed effects model. It is found that inter-provincial trade has a significant positive effect on economic growth, and each 1% increase in inter-provincial trade will increase per capita GDP by 0.19%. Furthermore, inter-provincial trade positively affects economic growth through the effect of technology improvement and industrial structure upgrading. However, the two mechanisms are heterogeneous in the eastern, central, and western regions. Among them, the technology improvement mechanism is only established in the central and western regions and the industrial structure upgrading mechanism is only established in the eastern and central regions. Finally, we suggest that governments should formulate targeted development goals and plans according to the actual situation of each region, to ensure that inter-provincial trade can play a full role in promoting economic growth.