The main causes of the faster growth in China's eastern coastal area, and thus for the rise in income disparity between eastern and western regions, are the rapid increases in foreign trade and foreign investment resulting not only from the government's coastal development strategy but also from inherent advantages of the eastern coastal area. Since 1999, the development strategy for western China has focused on the injection of large amounts of capital, but fiscal constraints make this strategy unsustainable. China's government should allow mobility of the labor force across regions to play a bigger role in solving the income disparity problem.
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© 2005 Center for International Development and the Massachusetts Institute of Technology