Quantifying China's regional economic complexity

Abstract

China has experienced an outstanding economic expansion during the past decades, however, literature on non-monetary metrics that reveal the status of China's regional economic development are still lacking. In this paper, we fill this gap by quantifying the economic complexity of China's provinces through analyzing 25 years’ firm data. First, we estimate the regional economic complexity index (ECI), and show that the overall time evolution of provinces’ ECI is relatively stable and slow. Then, after linking ECI to the economic development and the income inequality, we find that the explanatory power of ECI is positive for the former but negative for the latter. Next, we compare different measures of economic diversity and explore their relationships with monetary macroeconomic indicators. Results show that the ECI index and the non-linear iteration based Fitness index are comparative, and they both have stronger explanatory power than other benchmark measures. Further multivariate regressions suggest the robustness of our results after controlling other socioeconomic factors. Our work moves forward a step towards better understanding China's regional economic development and non-monetary macroeconomic indicators.