– This study undertakes empirical analysis of the factors that have influenced economic growth in China's provinces during the process of institutional transformation, and to examine whether the disparities in economic growth between provinces have been expanding or diminishing.
– Pooled cross‐section (provinces) and time‐series data are employed, with the error components method also being used for the empirical testing.
– Empirical test results using the error components model have shown that during the period from 1988 to 1998, there was a tendency towards divergence of the economic growth rates achieved by China's provinces, with the variables relating to the employed population, changes in property rights and foreign direct investment (FDI), all having a positive impact on economic growth.
– With China's huge size and the idiosyncrasies of its constituents, it is difficult to quantify the data collected when measuring the geographical, social, institutional and economic ingredients of the provinces.
– Whether or not the process of institutional transformation in China succeeds in building a truly efficient system will depend on innovation, a process within which the accumulation and transmission of knowledge plays a very important role.
– The establishment of the empirical model in this study is based on convergence testing using the endogenous growth model, and takes into consideration the impact which China's institutional transformation has had on economic growth in individual provinces.