This question is inspired by Bao et al. (2002) “Geographic factors and China’s regional development under market reforms, 1978–1998”. The article can be found on the course website. Please read this paper before answering the following questions.
a) In the first lecture of this course, we emphasized the importance of institutions in explaining the differences in economic prosperity across regions. In this paper, the authors emphasized the role of geographical factors in explaining the variations in China’s regional development. Does the main message of this paper conflict with what we emphasized in lecture one? Please explain why it does or why it does not.
This study undoubtedly considers geographical factors largely as the main factor causing the variations in the regional development. according to some calculations the geographical factors account for 60%. However, on the other hand, this paper emphasizes the importance of institutions, too. Therefore I would not say that the paper opposes what we learnt in the first lecture. The authors also emphasize the importance of institutions. It was after Mao’s period, when the Chinese government removed restrictions on foreign trade and created incentives for foreign investment. A lot of favorable policies, for instance generous tax holidays and credit matching, targeted foreign investors. That resulted in the rapid growth in coastal areas supported by large inflows of investment, which together with large influx of migrants widened growth differences between regions.
b) The coastline length is the most powerful geographic variable in explaining growth in provinces. The authors take this to be strong evidence that the geographic factors have important impact on the reform and development. Can you think of factors captured in the coastline length variable that is not “geographical”, in other words, what could be the major criticism against using the coastline length variable to demonstrate simply...
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