This paper analyzes the development and effects of intra-provincial regional disparities in China
between 1989 and 2001. A decomposition analysis shows that intra-provincial disparities contribute
significantly to total regional inequality. In the second part of the paper, the impact of the observed
intra-provincial disparities on regional economic development is addressed. Using provincial panel
data on industrial growth, capital and employment, the impact of inequality on industrial growth is
estimated as affecting technical efficiency and level of technology. The results show a significant
positive effect of intra-provincial disparities on provincial industrial growth, with causality from
inequality to growth. Moreover, it appears that the inequality-growth relationship is not a linear one,
but rather that the impact of extreme changes in inequality is stronger and more significant than a
moderate increase in inequality. These outcomes are robust to alternative model specifications and
control variables.