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The Spatial Dimension of Trade- and FDI-driven Productivity Growth in Chinese Provinces: A Global Cointegration Approach


  • Timo Mitze,

  • Selin Özyurt

  • Timo Mitze is an Assistant Professor in the Department of Border Region Studies, University of Southern Denmark, Alsion 2, 6400 Sønderborg, Denmark. His e-mail address is: Selin Özyurt is a Graduate Programme Participant at the European Central Bank (ECB), Kaiserstrasse 29, 60311 Frankfurt am Main, Germany. Her e-mail address is: The views expressed are those of the authors and do not necessarily reflect those of the ECB. The authors thank Alfredo R. Paloyo, Christoph M. Schmidt as well as three anonymous referees for their valuable comments. An earlier version of this paper has been presented at the 52nd Annual Congress of the European Regional Science Association in Bratislava, Slovakia.
  • JEL classification: O11; O18; P20; R10


This paper analyses the major determinants of long- and short-run labour productivity evolution for Chinese provinces between 1978 and 2010. The role played by openness to trade and foreign direct investment (FDI) constitutes the main focus of this analysis. From a methodological perspective, our main contribution is the inclusion of spatial effects into a dynamic error correction modelling framework. The results show that, in addition to domestic factors such as investment intensity and infrastructure use, trade openness and inward FDI also exert a direct impact on labour productivity. Furthermore, the geographical environment has a strong indirect influence on productivity: The more a region is surrounded by high-productive regions with good infrastructure and linkages to the world economy, the higher are its productivity level and growth rate. The magnitude of these impacts varies by spatial regime (coastal, interior provinces) and time period in focus. Especially in the recent past, trade and FDI activity appear to be increasingly important drivers of regional productivity evolution, both for coastal and interior regions. These findings have important policy implications: In order to fully exploit the benefits from such spillovers, coordinated industrial policies which foster regional complementarities and support the free movement of production factors across regional borders are crucial.