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Abstract - With the panel data of China's 31 provinces in
1997-2004, the paper uses dynamic panel GMM estimation
to test the impacts of urbanization on economic growth
taking the urbanization ratio and the urban primacy ratio as
urbanization index. The result shows that the urbanization
ratio has a negative but small impact on economic growth.
Furthermore, it also refects urbanization boosts economic
growth within a certain economic development degree and
the growth efect of urbanization turns negative beyond it.
Now all provinces are above the critical level, which means a
simple extension-type expansion will impede economic
growth with the evolution of urbanization. In addition, the
urban primacy ratio does not have a signifcant infuence on
economic growth, which is inconsistent with the prior
fnding of Henderson. Therefore, this paper provides
suggestions of urbanization in order to promote china's
economic growth.
Keyords - Urbanization, economic growth, dynamic
panel data, GMM estimation
I. INTRODUCTION
Since economic reforms in 1978, the Chinese economy
has maintained an average annual economic growth rate
of 9.7%. While in the meantime, the urbanization rate
fom 17.92% in 1978 rose to 45.68% in 2008. The main
impetus for this change is market-oriented reforms. Along
with deregulation of institutional mechanisms and
changes in capital, labor, land and other production
factors in a more fexible, effcient way into economic
process across the 30 years, China has carried out
industrial expansion and fast growth by the factor input
and exports demand actuation. However, a series of
ensuing questions such as resources shortage,
environmental damage, imbalance between investment
and consumption, labor insuffciency and the interational
market saturation have given a challenge to China's
economy, which have started to reveal gradually since
2008. How to maintain sustained and rapid economic
growth has become a major issue China facing.
Many scholars believe that urbanization as the hub of
stctural change and revitalizing domestic demand is the
main driving force by that the fture Chinese economy
can maintain a high growth rate in fture, while expansion
of industrial scale is unsustainable (Research Group on
China's Growth and Macroeconomic Stability, 2009). In
general, urbanization rising fom industrialization is an
important process the current developing coutries,
including China, are experiencing, during which the
population and industry gather together in urban areas
under the action of agglomeration economies and
economies of scale. The natural concentration of
population, capital, information and other resouces to the
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