Research & Impact
Hong Kong-Chinese Mainland Economic Integration Index
Hong Kong-Chinese Mainland Economic Integration Index
- Applications to Public Policy Research
(Projected funded by the Policy Innovation & Coordination Office of the Government of the Hong Kong Special Administrative Region)
This research develops a framework that defines and analyses the economic integration of Mainland China and Hong Kong. The research team (Team) is led by Prof Geng CUI, Director, Hong Kong Institute of Business Studies (HKIBS) and Professor, Department of Marketing and International Business, Faculty of Business, Lingnan University.
A construction method for the Mainland China–Hong Kong economic integration index is proposed to measure the development of the economic integration of Mainland China and Hong Kong over time.
The Team proposes the indicators that measure the various aspects of the economic integration of Mainland China and Hong Kong. The index of economic integration aims to facilitate policy research and evaluate the long-term and causal relationships between the degree of economic integration and various important economic, social and political issues, including economic growth, unemployment rates, property prices, income disparity, social mobility, satisfaction with the government and ethnic identity.
The Team finds that the economies of Hong Kong and Chinese Mainland have become highly integrated and interdependent on each other during the study period. It is found that the proposed economic integration index is associated with several socio-economic indicators of Hong Kong in significant ways. It is examined the dynamic relationships between the proposed Chinese Mainland-Hong Kong Economic Integration Index and several key economic indicators (GDP, unemployment rate, Gini coefficient, and happiness indices) to demonstrate the predictive validity of the index. These key economic indicators are retrieved from different public databases. For example, GDP and unemployment rate data are from the Hong Kong Statistics and Census Department. The data on people’s ethnic identity and confidence in Hong Kong’s future are extracted from the Hong Kong University Public Opinion Programme. The happiness index is derived from the Centre for Public Policy Studies of Lingnan University. The data are organized as annual time series for the 1990 to 2016 period.
This project is relevant to public policy in Hong Kong for two reasons. First, it is the first attempt to construct an economic integration index for the Chinese Mainland and Hong Kong. An economic integration index is a useful method for measuring economic integration. It offers a quantifiable basis for policy discussion, which leads to better assessments of the economic and social consequences of economic integration. Regional institutions have recently started to develop, construct, and publish integration indices. For example, in early 2010 the European Union announced an annual EU Integration Index. In 2015, the Africa Development Bank published the Africa Regional Integration Index. The Pacific Economic Cooperation Council announced an index in 2013.
There are several advantages to having a unified composite index as opposed to individual measurements of each aspect of economic integration. First, it provides a simple summary of the complex and elusive dimensions of economic activities. Second, it is easier for policymakers to interpret a single index than to identify the common trends across many separate indicators. Third, it facilitates communication with the public. Many fields study and measure different aspects of Mainland-Hong Kong economic integration. Simply adapting existing international indices to the Mainland-Hong Kong context would be misleading. It is therefore necessary to address the specific nature and features of economic integration in the Mainland-Hong Kong context.
In addition, although the literature on the nature and processes of economic integration between the mainland and Hong Kong is rich, only a few studies have discussed the consequences of integration. We fill this gap by providing empirical evidence of a long-term and causal relationship between the degree of economic integration and economic growth, the unemployment rate, property prices, income disparity, social mobility, satisfaction with the government, and ethnic identity. These are all important and acute economic, social, and political issues that are highly relevant to the public interest. This study’s conclusions should facilitate policy discussions that aim to solve outstanding issues and to develop plans for the long-term economic development of Hong Kong.
2016 Hong Kong-Chinese Mainland Economic Integration Index
Figure 1 presents the values of the three sub-indices during the 1990 to 2016 period. We see that in the early years the transmission channel, i.e., the trade and investment activities of the two sides, played an important role in the process of economic integration. In 2006, the driving forces, such as the CEPA agreement, facilitated the closer cooperation of the two economies.
Figure 1. Three Sub-indices of Economic Integration between Chinese Mainland and Hong Kong
The transmission channel sub-index drops a little bit between 2007 and 2009 due to the global financial crisis. However, the overall economic integration in Figure 2 still moved upward due to the introduction of several governmental policies such as the Individual Visit Scheme, which further enhanced the joint cooperation and economic integration.
Figure 2. The Overall Mainland-Hong Kong Index from 1990 to 2016
Figure 3 illustrates the trends in the economic integration index and several key indicators over the study period. For example, we can see that the trend in GDP matches the trend in economic integration.
Figure 3. Relationships between the Economic Integration Index and Key Economic and Social Indicators
|Gini coefficient||Confidence of Hong Kong future|