Panel Data Analysis of Income Convergence in China

This paper examines the hypothesis of per-capita income convergence among 31 Chinese provinces during 1993∼2016, using CIPS panel unit root and MD test. The results of MD test show that limited evidence in line with convergence is found in whole sample as well as in some subgroups. The result for club 1 is strongly supportive of the per-capita income convergence hypothesis. The results of CIPS test do not support a nationwide convergence in per-capita income gap in China, while the convergence is found in some clubs. This finding indicates that per-capita income differentials among provinces are not the transitory convergence process and thus the income differentials do not tend to disappear. Therefore, the rapid economic growth of China s provincial economies during our sample period could be at the price of the increasing interprovincial inequality. Consequently, our empirical findings imply that past policies by Chinese government might not have been able to produce the much needed reduction in persisting regional gaps. Thus, policies aimed at alleviating these structural differences in output are required.