Market Integration and Inter-Province Freight Flows in China
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Kobe University Repository : Kernel タイトル Market integration and inter-province freight flows in China Title 著者 Lin, Huang Author(s) 掲載誌・巻号・ページ The annals of the Graduate School of Business Administration, Kobe Citation University,44:69-90 刊行日 2000 Issue date 資源タイプ Departmental Bulletin Paper / 紀要論文 Resource Type 版区分 publisher Resource Version 権利 Rights DOI JaLCDOI 10.24546/81003695 URL http://www.lib.kobe-u.ac.jp/handle_kernel/81003695 PDF issue: 2021-10-06 MARKET INTEGRATION AND INTER-PROVINCE FREIGHT FLOWS IN CHINA Huang Lin* Abstract This paper investigates the changes in the inter-province freight flows in China for the period 1978-97 and examines the effect of eco- nomic growth and infrastructure development on the interdependencies between provinces. The author shows that inter-province dependencies have increased after 1985, and the physical infrastructure investment is the most important factor. In addition, The expansion of consumption increases the economic autonomy of provinces and a long period of time is required to achieve market integration. Key words: market integration, inter-province dependencies, external de- pendence rate Introduction This paper investigates the changes in the inter-province freight flows in China and the changes in inter-province dependencies for the period 1978-97. The primary goal is to examine the effect of economic growth and infrastructure development on the interdependencies be- tween provinces. The political divisions of China consist of 23 provinces, 5 autonomous regions and 4 municipalities administered centrally. In the following pages, the concept of 'province' is limited to the above 32 regions. Market integration within province or intra-province integra- tion will not be discussed in this paper. Many studies related to the role of distribution system in economic development have been conducted using the theory of distribution sys- tems. The economic development of China has brought structural changes to its distribution system. Therefore, it is important to explain * Associate Professor, Graduate School of Business Administration, Kobe Univer- sity. 70 Huang Lin such structural changes in two processes, namely 'transition to market' and 'market system development'. Empirical research on the transition of the Chinese economy, using the above two process has been con- ducted by a number of authors testing different hypotheses. The research on China highlights the problems of market fragmen- tation, which was one of the characteristics of the Chinese economy in the 1980's, as well as the problems of regional inequality. However, there has been little research on the market integration of China or the inter-province dependencies. In the 1990's, there was a series of papers published when the inter-dependencies between provinces became a cru- cial indicator for market integration (Kato 1997). However, most of these research did not examine the inter-province freight flows in China. Therefore, first, it is necessary to review and put all the previ- ous studies related to inter-province freight flows in order. Second, It is important to clarify the mechanism which market integration ap- pears when the dependency between provinces increases. Based on previous studies of distribution systems, it has been ar- gued that the development of infrastructure supporting physical distri- bution activities is as important as improvement of trading and information transmission activities, especially in the case of developing countries. In addition, this research suggests that improvement in physical distribution networks and technology will cause market system development, and such changes lead to a positive feedback in market integration. Consequently, it is important to show the impacts of Chi- nese infrastructure on the inter dependencies between provinces. This paper consists of four parts. The first section reviews the pre- vious studies on the relationship between market integration and eco- nomic development. The next section analyses long-term changes in the inter dependencies between provinces using the data from inter-province railway cargo matrix (the volume of inland freight Originating and Destination = OD Table). It also investigates the conditions of market integration from the standpoint of inter-province freight flows. The third section analyses the determinants of the inter-province freight flows and their impacts. The final section discusses future research topics for analyzing inter-province relationships in China. MARKET INTEGRATION AND INTER-PROVINCE FREIGHT FLOWS IN CHINA 71 I. The Relationship Between Market Integration and Economic Development I .1. The Inter-Province Dependencies and Market Integration Market integration is a multidimensional and complex concept. When a province is used as the unit of analysis, market integration leads to increase inter dependencies between provinces and causes spe- cialization and differentiation of provinces. On the other hand, market fragmentation leads to lower inter dependencies between provinces. The provinces of China are formed by independent industrial system based on the existing planning economic system and 'self-reliance' policy, and these provinces show notably low interdependencies. By analyzing the inter-province dependencies, we should be able to verify whether in- creased inter-province dependencies will cause market integration across provinces. The inter-province dependencies can be explained by the distribu- tion of flows between provinces. Previous studies on China also empha- size the importance of analyzing the development of the Chinese market system from the standpoint of market fragmentation or integration. For example, the World Bank (1994) claimed that the fragmentation of China's domestic market has been strengthened through economic de- velopment. On the other hand, the study by Kato (1997) has a different conclusion on market integration, regional inequality, and inter- province flows in China. He concludes that the period from the late 1980's to the early 1990's can be considered as a turning point. In par- ticular he argues that "market integration is in the process regardless of the disturbance from many system and non-system obstructive fac- tors". Nevertheless, the former arguments are widely accepted. The com- mon opinion states that the transition and development of market sys- tem in China causes domestic market fragmentation, thus, there will be a lower inter-province dependencies. Based on this point, we present the following proposition concerning the changes in inter-province freight flows in China. Hypotheses 1: The inter-province dependencies have decreased since 1985. 72 Huang Lin Investment in physical infrastructure is considered as one of the sources of economic development. In the case of developing countries, the formation of physical flow networks and improvement in transport technology and logistic services often lead to the development of their market systems. The importance of physical infrastructure, institu- tional infrastructure and human infrastructure are emphasized in the development of market systems. Physical infrastructure has been well developed in all countries that have achieved a certain stage of eco- nomic development. In addition, physical infrastructure consists of fa- cilities and a nationwide network that support the supply of services which are required by household for their existence. Mode of physical infrastructure includes railway services, roads, airports, ports, and communications. Besides acting as a nationwide network for economic activities and the basis for people's livelihood, physical infrastructure is particularly important for market integration. Research concerning market integration in China emphasizes insti- tutional factors and policy factors. For example, one of the causes of market fragmentation is structural factor, that is the similarity of re- gional industrial structures. However most of the existing research em- phasizes the institutional or policy factors, such as district decentrali- zation, financial contractual system, or protectionism by the local gov- ernments. However, at present, China's physical infrastructure and its nation- wide physical flow network are still insufficient. In addition, the effect of institutional reform such as changes in the taxation system on the inter-province dependencies is not clear. Therefore, although it is clear that institutional and policy factors have also had significant effects, investments in physical infrastructure are theoretically considered as an important source of market integration. Hypotheses 2: Investment in physical infrastructure will increase inter- province dependencies I .2. The Determinants of Inter-province Freight Flows Many studies on inter-province freight flows use the spatial inter- action (gravitation) model of economic geography. Economic geogra- phy is primarily concerned with the effect of distance on inter-regional MARKET INTEGRATION AND INTER-PROVINCE FREIGHT FLOWS IN CHINA 73 freight flows whereas interaction models use variables such as the size of destination market for the incoming and outgoing shipments. The re- gional population is normally used as the indicator for market size in empirical research. For example, Chisholm and O'Sullivan (1978) analyze the inter- regional freight flows of road cargo and railway cargo in the United Kingdom using population size, the number of workers and the total retail sales of the regions. Unfortunately, all the variables