Innovation and regional economic convergence: evidence from China

Reducing regional economic disparities in China is an important task to facilitate inclusive and sustainable long-term economic growth. This paper investigates the role of technological innovation in facilitating regional economic convergence in China (i.e., narrowing the gap between more developed and less developed provinces). We utilize a province-level panel data set from 1998 to 2017 to calculate the so-called sigma (sigma) and beta (beta) regional economic convergence indexes, which allows us to examine the patterns of convergence in China over time. In particular, we use panel data regression models to calculate beta indexes and examine how various measures of technological innovation influence regional economic convergence in China. Findings from our empirical analysis suggest that the provincial economies were diverging from 1998 to 2006. However, we observe regional economic convergence in China after 2006. Moreover, we find that technological innovation promoted regional economic convergence post-2006, and there is evidence that technological innovation spills over and benefits nearby surrounding provinces. We also find that transfer payments made by the Chinese central government to the provinces help boost regional economic growth and narrow regional economic disparities.