Spatial spillover and regional economic growth in China

This paper investigates the spatial structure of the provincial economic growth and the spatial spillover in China from 1998 to 2008. First, we apply Moran's index to detect the positive spatial autocorrelations across the provinces of China. Second, we build a new economic geography model and the role of market potential in promoting regional income growth is highlighted. Third, two measures of market potential are constructed and a spatial error model is adopted to obtain the estimations, considering spatial autocorrelation. Controlling for major inputs, such as labor, capital, and human capital, the market potential continues to promote substantial regional growth. On average, an increase of 10 percentage points in the market potential increases the regional GDP per capita growth by 3-5 percentage points.

► We investigate the spatial structure of regional spillover in China. ► We first detect positive global spatial autocorrelation across provinces. ► We construct a measure of market potential as a proxy for spatial spillover. ► We use spatial lag and spatial error models to account for spatial autocorrelation.