Is economic growth improving urbanisation? A cross-regional study of China

Abstract

This study applies a bootstrap panel Granger causality test to determine the relationship between urbanisation and economic growth for China. We find that the patterns of interaction between urbanisation and economic growth vary across different regions. The empirical results show that in urbanisation of the northern coastal region and most of the inland region Granger causes economic growth, whereas economic growth does not have a significant effect on urbanisation, except in the southern coastal region and the inland region. One-fourth of China’s provinces, primarily in the southern coastal region, do not show a Granger causality relationship between urbanisation and economic growth. This finding indicates that urbanisation has promoted economic growth by expanding demand and that economic growth’s effect on urbanisation is restricted by administrative intervention rather than market mechanisms. Thus, the findings for three-fourths of the provinces in China conform to the urbanised economy theory. These results may help regional governments undergoing urbanisation to create fair economic growth policies.