Beyond the Coast: an Empirical Assessment of the Kaldor-Verdoorn Law in Chinese Provinces

Abstract

This paper investigates spatial productivity convergence across Chinese provinces during structural transformation, examining how a shift in auonomous demand composition reshaped regional productivity dynamics. Using Panel Structural Vector Autoregressive modelling and province level data from 2001 to 2021, we analyse eastern, central, ad western regions across two sub-periods through the augmented Kaldor-Verdoorn law. A post-2011 spatial reversal emerges: inland regions exhibit stronger Verdoorn coefficients, while fiscal multipliers converge across coastal and inland areas, validating China's redistributive fiscal policies in narrowing regional productivity gaps. The Kaldor-Verdoorn coefficient remains robust throughout, while export effects on productivity collapse and government expenditure effects strenghten.