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Application of the Input-Output Decomposition Technique to China's Regional Economies

Discussion Papers

No.102

by MENG Bo and Chao Qu
April 2007

ABSTRACT

Structural decomposition techniques based on input-output table have become a widely used tool for analyzing long term economic growth. However, due to limitations of data, such techniques have never been applied to China's regional economies. Fortunately, in 2003, China's Interregional Input-Output Table for 1987 and Multi-regional Input-Output Table for 1997 were published, making decomposition analysis of China's regional economies possible. This paper first estimates the interregional input-output table in constant price by using an alternative approach: the Grid-Search method, and then applies the standard input-output decomposition technique to China's regional economies for 1987-97. Based on the decomposition results, the contributions to output growth of different factors are summarized at the regional and industrial level. Furthermore, interdependence between China's regional economies is measured and explained by aggregating the decomposition factors into the intraregional multiplier-related effect, the feedback-related effect, and the spillover-related effect. Finally, the performance of China's industrial and regional development policies implemented in the 1990s is briefly discussed based on the analytical results of the paper.

Keywords: Input-Output, decomposition, economic growth, China’s regional economies
JEL classification: C67, C82, R15, O40

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