Growth-cycle phases in China’s provinces: A panel Markov-switching approach

This paper analyses features of 28 provincial growth-cycles in China’s economy from March 1989 to July 2009. We study the multivariate synchronization of provincial cycles and the selection of the number of cycles phases’ by means of panel Markov-switching models. We obtain evidence that growth cycles in China and its provinces’ are characterized by distinct episodes of ‘growth-recession’, ‘normal-growth’ and ‘rapid-growth’. We find a demarcation between coastal and interior provinces in term of level of ‘normal-growth’ and ‘rapid-growth’ rates. The results, also, show evidence supporting interior provinces catching up on coastal provinces proving efficient economic policy coordination to reduce the gap between the Chinese coastal and interior. However, in terms of concordance, coastal provinces have cycles that are more synchronized with the national cycle than the interior provinces. Thus, China’s national and subnational officials have to take further effective measures to achieve high degree of concordance between national and interior provinces. The geographic pattern of the national growth-recessions and rapid-growth periods have substantially changed over time. The number of provinces experiencing growth-recession at the middle of the nation’s growth-recession has reduced over time while the number of provinces in rapid-growth at the middle of the nation’s rapid-growth has increased over time.