The Impact of Normalised Cross-Strait Relations on Regional Economics—An Empirical Study of Jiangsu Province

Abstract

How does the quality of international relations between countries affect regional economics? The question of how much economic change can be attributed to the trajectories of international politics is difficult to answer, because different factors over time can influence economic development. This research uses synthetic control and difference-in-differences methods to evaluate the impact of the normalisation of cross-strait relations in 2008 on regional economic growth in Jiangsu province. Based on data from the Regional and China Year Books from 1990 to 2015, Jiangsu province, a region with prominently close economic ties with Taiwan, witnessed a CNY 20,726.52 (around GBP 2328.35) increase in per capita GDP from 2008 to 2015, compared with the counterfactual in the absence of normalised cross-strait relations. There was an annual increase of approximately CNY 2961 Yuan (around GBP 333). This research has important implications for acknowledging the relationship between the quality of political relations and their economic impact on confrontational countries and regions.