Urbanization – manifested through level of infrastructure development, perception of businesses, and state of labor market – has the potential to catalyze economic growth and improve human capital outcomes. 

In 2017, the development of the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) into a megalopolis was codified in a government report in China. GBA consists of Hong Kong Special Administrative Region (SAR), Macao SAR and nine cities of Guangdong province – Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing. The idea was to create a unified market to benefit from economies of scale and agglomeration and make GBA a global innovation and technology hub of China. A quantitative research study on Guangdong by ACI found that both labor productivity and GDP per capita of Guangdong declined in the aftermath of the 2017 GBA announcement. 

The study focused on the Guangdong province as the main area of interest over a period of 21 years – from 2000 to 2020. A ‘synthetic Guangdong’ that resembled the characteristics of the Guangdong province was imputed to give a counterfactual trend of Guangdong’s GDP per capita and population density. In other words, the ‘synthetic Guangdong’ represents an approximation of what would have happened in Guangdong had there been no GBA announcement.

It was found that Guangdong’s GDP per capita declined and population density shot up soon after the GBA announcement. The population jump is likely, at least partially, due to the talent recruitment policies of the GBA. These policies sought to attract foreign talent, raise R&D expenditure for firms and promote entrepreneurship among science and technology start-ups. Local residents enjoy benefits including healthcare, education for children, and relaxed hukou (household registration status policy), permitting them to purchase houses. Newly recruited foreign talent is given tax subsidy, while those from Hong Kong and Macao received preferential treatment relating to law, healthcare and tourism. Although the benefits and policies to attract foreign talent are aplenty, talent from other Mainland provinces proved to be the major source of Guangdong’s population growth. The decline in population of certain provinces happened in tandem with an increase in Guangdong’s population.  

Intuitively, owing to the population burst in the region, labor productivity took a dip. The authors conjecture that the decline in productivity could be attributed to the “significant rise in employment in relatively lower productivity sectors such as construction, wholesale and retail”. This is inevitable given the importance of these sectors in laying the foundations of a global urban center. 

These results have striking implications for policymakers, on various levels, who are looking to develop new urban centers or promote regional development. They allow them to evaluate and prepare for demographic changes and the resulting macroeconomic situation of the region. While the study finds a decline in GDP per capita and labor productivity, the results accrue from a short period of time after the announcement (2017-2020). Much remains to be seen how and where the new population assimilates in the economy over time. The benefits arising from these policies may be realized only with the passage of time. 

By Shubhangi GUPTA

Researchers: Jingwei LI, Lucas SHEN, Xuyao ZHANG