Economic Growth across Space and Time: subprovincial Evidence from Mainland China

Abstract

We present a new composite leading indicator of economic activity in mainland China, estimated using a dynamic factor model. Our leading indicator is constructed from three series: exports, a real estate climate index, and the Shanghai Stock Exchange index. These series are found to share a common, unobservable element from which our indicator can be identified. This indicator is then incorporated into out-of-sample one-step-ahead forecasts of Chinese GDP growth. Recursive out-of-sample accuracy tests indicate that the small scale factor model approach leads to successful representation of the sample data and provides an appropriate tool for forecasting Chinese business conditions.Regional Economic Growth, China