From Polarization to Diffusion: Market Concentration and Regional Income Gaps in China

This paper examines the effect of regional market concentration on within-province regional income gaps in China. Using provincial panel data from 2000 to 2023, it documents a significant inverted-U relationship: within-province regional income gaps initially widen and subsequently narrow as regional market concentration increases. This result remains robust after accounting for potential endogeneity and when alternative measures, sample restrictions, model specifications, and data sources are used. Nonlinear mechanism tests indicate that regional market concentration operates through both polarization and diffusion effects. The PSTR estimates further reveal a stage-dependent transition between these mechanisms: polarization dominates at lower levels of concentration, whereas diffusion becomes stronger as concentration rises. Dynamic lag analysis shows that polarization generates primarily an immediate gap-widening effect, while diffusion produces both contemporaneous and persistent convergence effects. Heterogeneity analysis suggests that the inverted-U relationship holds in both monocentric and polycentric provinces and varies across policy stages and ownership types. This paper extends the literature on regional income gaps from a market-structure perspective and provides new evidence for coordinated regional development in emerging markets.