Hong Kong’s economic integration with Chinese mainland: an index and cointegration analysis of socio-economic indicators

We use archival data from various sources between 1990 and 2019 to construct a comprehensive index of economic integration between Hong Kong and Chinese mainland. The results indicate that the two economies have become highly integrated and interdependent over time. Cointegration tests of the long-run relationships between the index and economic and social indicators suggest that such integration is largely in tandem with the economic development of Hong Kong (e.g. GDP growth, unemployment, and property prices). However, the index is also associated with increasing disparity, a lack of confidence in the government and the future of Hong Kong, and the identity of Hongkongers. The findings reveal the positive effect of economic integration as well as deep-rooted problems in the territory. These problems present significant challenges for economic development and governance under the ‘one country, two systems’ and call for policy discourse on effective solutions.