Factor Decomposition and Policy Implication of China’s North-South Regional Differences

China’s North-South regional differences have been widening since the new century, with obvious differences in the roles of various growth factors. Using the decomposition framework of regional differences based on development accounting and China’s provincial-level data from 1978–2022, this study investigates the impacts of total factor productivity, physical capital, and labor inputs on the economic differences between the North and South, and finds that: (1) the difference in total output between the North and the South has continuously expanded, but the gap of output per worker has not changed much in the last decade or so; (2) total factor productivity differences have been an important factor influencing the North-South differences, and will likely dominate the future trend of regional differences; (3) physical capital differences are more prominently affected by regional policies, but the policy effects need to be coordinated and considered in many ways.