AbstractOver the past decade, goods and capital flows between Hong Kong and Chinese Mainland have increased substantially, however, there have been few rigorous empirical study on whether and to what extent the two economies integrated. This study intends to fill this gap by testing whether relative prices of different goods and services converge between Hong Kong and Mainland China for the period from 1997 to 2002.
Using a panel of 17 commodity prices from Hong Kong and four major cities of Chinese Mainland (Beijing, Hanghai, Shenzhen, Guangzhou), I find statistical evidence of price convergence between Hong Kong and Chinese Mainland. So, this study suggests that there is a growing economic integration between Hong Kong and Chinese Mainland. However, the speed of price convergence between them is less than that among four Mainland cities, which might have resulted from the differences in the degree of factor mobility, monetary and tax policy, and government regulations. The speed of convergence also differs significantly across the spectrum of products. In particular, I find that prices converge more quickly for tradable goods. Meanwhile, using Shenzhen as benchmark city, I find prices converged at a much slower speed between Shenzhen and Hong Kong than between Shenzhen and other Mainland cities, though the geographic distance between Shenzhen and Hong Kong is much shorter than that between Shenzhen and other Mainland cities. Thus, this empirical study demonstrates a strong border effect between Hong Kong and Chinese Mainland.
|Date of Award
|Xiangdong WEI (Supervisor)