Mechanics of Spatial Growth: A Quantitative Assessment of 1990s China’s Regional Growth

This paper studies how regional growth contributes to aggregate growth through knowledge diffusion via factor mobility and trade. Using province-level data from China during the 1990s and 2000s, we provide empirical evidence that internal migration and international trade significantly increase local knowledge accumulation. Motivated by this evidence, we develop and estimate a multi-region, semi-endogenous growth model in which knowledge diffuses across provinces through trade and forward-looking migration decisions, while capital is endogenously accumulated. Applying the model to China from 1990 to 2010, we quantify the roles of initial conditions, changing fundamentals, capital accumulation, and interregional knowledge flows in shaping regional convergence and national growth. Initial fundamentals have persistent effects on regional growth trajectories. In the early years, capital accumulation and knowledge diffusion each account for roughly half of aggregate growth and much of the cross-regional variation. Over time, knowledge diffusion becomes the dominant driver of both regional and aggregate growth.