Measuring the Dragging Effect of Natural Resources on Economic Growth: Evidence from a Space–Time Panel Filter Modeling in China

Abstract

China has witnessed rapid economic growth in recent decades, but it increasingly faces the challenges of water shortage and arable land depletion. This article develops a space–time panel filter model (STPFM) to measure the dragging effects of the arable land and available water resources on economic growth in China at both the national and regional levels. Unlike traditional panel models, the STPFM allows us to explicitly account for spatial cross-regional dependence in the data. This is particularly important for two interrelated reasons. First, the aggregated output and its resource factors as well as physical capital and human capital have been shown to be spatially correlated and cross-regionally dependent. Second, STPFM can potentially mitigate the bias of variable omissions by taking into account spatial dependence and diffusion. The results show that the aggregate drag of arable land and available water resources reduces annual economic growth rate by about 1.3 percentage points in China as a whole, and significant differences exist in both disaggregate and aggregate drags over the provinces and regions. Our experiment confirms that the STPFM is an effective technique to quantify joint spatial and temporal dragging effects of natural resources on economic growth.