NAL OF COMPARATIVE ECONOMICS 25, 220-236(1997) CLE NO. JE971462 The Coast-Noncoast Income Gap, Productivi and Regional Economic Policy in China Belton M. Fleisher The Ohio State University, Columbus, Ohio 43210 Jian Chen Kenyon College, Gambier. Ohio 43022 Received August 21. 1996: revised June 2. 1997 Fleisher, Belton M, and Chen, Jian-The Coast-Noncoast Income Gap, Productiv ity, and Regional Economic Policy in China We postulate that inferior factor productivity in Chinas noncoastal provinces is principal reason for their lower economic growth despite high investment rates relative to provincial GDP. We find that total factor productivity is roughly twice as high in the coastal provinces and estimate that investment in higher education and foreign direct investment helps explain the productivity gap. We speculate that despite its elatively modest estimated return, investment in infrastructure may be necessary to attract foreign direct investment and to retain university graduates in the interior Comp. Econom., October 1997, 25(2), pp. 220-236. The Ohio State University, Co- lumbus, Ohio, 43210; Kenyon College, Gambier, Ohio 43022. 0 1997 Academic Pres Journal of Economic Literature Classification Numbers: O15, 018, 047, 053 INTRODUCTION This paper is an attempt to understand the persistent and widening income gap between coastal and interior China and to suggest appropriate policies I This paper has benefited from the help of Dongwei Su and the comments of Mario Crucini, Pok-Sang Lam, Guang H, Wan, Shaowen Wu, Yong Yin, and two anonymous referees. We also thank Gary Jefferson and Barry Naughton, who offered extensive and valuable suggestions as scussants in the AEA session""Empirical Analysis of the Chinese Economy, New Orleans 1997, and participants in a seminar at the Center for Chinese Studies, University of Michigan, including Robert Dernberger, Junling Hu, David Li, Kenneth Lieberthal, and Albert Park. Xiaojun Wang provided excellent research assistance. Please send communications to B M. Fleisher, fleisher. l@osu. edu 0147-5967/97$2500 opyright e 1997 by Academic Press 220 All nights of reproduction in any form reservedJOURNAL OF COMPARATIVE ECONOMICS 25, 220–236 (1997) ARTICLE NO. JE971462 The Coast–Noncoast Income Gap, Productivity, and Regional Economic Policy in China1 Belton M. Fleisher The Ohio State University, Columbus, Ohio 43210 and Jian Chen Kenyon College, Gambier, Ohio 43022 Received August 21, 1996; revised June 2, 1997 Fleisher, Belton M., and Chen, Jian—The Coast–Noncoast Income Gap, Productiv￾ity, and Regional Economic Policy in China We postulate that inferior factor productivity in China’s noncoastal provinces is a principal reason for their lower economic growth despite high investment rates relative to provincial GDP. We find that total factor productivity is roughly twice as high in the coastal provinces and estimate that investment in higher education and foreign direct investment helps explain the productivity gap. We speculate that despite its relatively modest estimated return, investment in infrastructure may be necessary to attract foreign direct investment and to retain university graduates in the interior. J. Comp. Econom., October 1997, 25(2), pp. 220–236. The Ohio State University, Co￾lumbus, Ohio, 43210; Kenyon College, Gambier, Ohio 43022. q 1997 Academic Press Journal of Economic Literature Classification Numbers: O15, O18, O47, O53. 1. INTRODUCTION This paper is an attempt to understand the persistent and widening income gap between coastal and interior China and to suggest appropriate policies 1 This paper has benefited from the help of Dongwei Su and the comments of Mario Crucini, Pok-Sang Lam, Guang H. Wan, Shaowen Wu, Yong Yin, and two anonymous referees. We also thank Gary Jefferson and Barry Naughton, who offered extensive and valuable suggestions as discussants in the AEA session ‘‘Empirical Analysis of the Chinese Economy,’’ New Orleans, 1997, and participants in a seminar at the Center for Chinese Studies, University of Michigan, including Robert Dernberger, Junling Hu, David Li, Kenneth Lieberthal, and Albert Park. Xiaojun Wang provided excellent research assistance. Please send communications to B. M. Fleisher, fleisher.1@osu.edu. 0147-5967/97 $25.00 Copyright q 1997 by Academic Press All rights of reproduction in any form reserved. 220 AID JCE 1462 / 6w10$$$121 09-30-97 14:16:24 cea