Journal Pre-proof

The role of ports in the economic development of port cities: Panel evidence from
China

Long-ze Cong, Dong Zhang, Ming-li Wang, Hong-feng Xu, Li Li

PII: S0967-070X(19)30234-3
DOI: https://doi.org/10.1016/j.tranpol.2020.02.003
Reference: JTRP 2293

To appear in: Transport Policy

Received Date: 27 March 2019

Accepted Date: 07 February 2020

Please cite this article as: Long-ze Cong, Dong Zhang, Ming-li Wang, Hong-feng Xu, Li Li, The role
of ports in the economic development of port cities: Panel evidence from China, Transport Policy
(2020), https://doi.org/10.1016/j.tranpol.2020.02.003

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The role of ports in the economic development of port cities:

Panel evidence from China

Long-ze Cong
Dalian University of Technology
No.2 Linggong Road, Ganjingzi District, Dalian City, Liaoning Province, P.R.C., 116024
Tel: +86-15998621895; Email: ivan_Cong@mail.dlut.edu.cn

Dong Zhang
Dalian University of Technology
No.2 Linggong Road, Ganjingzi District, Dalian City, Liaoning Province, P.R.C., 116024
Tel: +86-18018924313; Email: zhangdong@dlut.edu.cn

Ming-li Wang
Dalian University of Technology
No.2 Linggong Road, Ganjingzi District, Dalian City, Liaoning Province, P.R.C., 116024
Tel: +86-18242084206; Email: wml0337@mail.dlut.edu.cn

Hong-feng Xu
Dalian University of Technology
No.2 Linggong Road, Ganjingzi District, Dalian City, Liaoning Province, P.R.C., 116024
Tel: +86-18641126551; Email: hfxu@dlut.edu.cn

Li Li
Chang’an University
Nan Er Huan Zhong Duan, Xi’an, Shanxi Province, P.R.C., 710064
Tel: +86-17391731025; Email: lili@chd.edu.cn
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ABSTRACT

Recently the driving force for economic growth in China’s port cities is insufficient, and ports are suffering from the
capacity surplus in the context of the global recession. To find out whether the problem could be relieved by adjusting
port and city development strategy, the present study examined the relationship between economic indicators of the port
city and the port throughput. Panel data regression models were estimated to examine the extent of impact between port
throughput and city economy with the second-generation panel data analysis methods, with panel data for 16 port-city
pairs in China over the period 2000-2016. Results suggest that port throughput imposes a non-negligible impact on GDP
while it has an opposite effect on the amount of total retail sales of consumer goods (TRSCG). Regarding the economic
structure indicators, the port throughput increases synchronously with the added value of the secondary industry (SI) but
negatively with that of the primary industry (PI) and the tertiary industry (TI). The causality test confirms an interactive
mechanism between the port city economy and the port throughput in the sampled city-port pairs. The underlying reasons
were discussed, and several policy suggestions to respond to the research question were proposed.

Keywords: Port impact; Port city economy; Economic structure; Panel data regression; Causality test

Acknowledgments
The authors would like to thank two anonymous reviewers for their valuable comments on the manuscript. The
study is funded by National Natural Science Foundation of China (No. 71701031, 71501014, 61374193), the
Fundamental Research Funds for the Central Universities (No. DUT18RC (4)049).

Disclosure Statement
The authors declare no conflict of interest.
 Journal Pre-proof

The role of ports in the economic development of port cities:

Panel evidence in China

ABSTRACT

Recently the driving force for economic growth in China’s port cities is insufficient, and ports are suffering from the
capacity surplus in the context of the global recession. To find out whether the problem could be relieved by adjusting
port and city development strategy, the present study examined the relationship between economic indicators of the
port city and the port throughput. Panel data regression models were estimated to examine the extent of impact between
port throughput and city economy with the second-generation panel data analysis methods, with panel data for 16
port-city pairs in China over the period 2000-2016. Results suggest that port throughput imposes a non-negligible
impact on GDP while it has an opposite effect on the amount of total retail sales of consumer goods (TRSCG).
Regarding the economic structure indicators, the port throughput increases synchronously with the added value of the
secondary industry (SI) but negatively with that of the primary industry (PI) and the tertiary industry (TI). The
causality test confirms an interactive mechanism between the port city economy and the port throughput in the sampled
city-port pairs. The underlying reasons were discussed, and several policy suggestions to respond to the research
question were proposed.

Keywords: Port impact, Port city economy, Economic structure, Causality test
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1 1. Introduction

2 Ports are the economic catalysts of the cities they serve, boosting the integration of economic industries and the
3 agglomeration of services, thus generating social and economic benefits (Funke and Yu, 2011; Yu et al., 2017). Ports
4 are transportation hubs located in the sea and river with waterway intermodal equipment for safe entry and exit of
5 ships. As assembly points and hubs of water and land transportation, ports are the distribution centers for industrial
6 and agricultural products in the trading system. According to Merk et al.(2011), ports located in Rouen contribute
7 more than 21% of regional Gross Domestic Products (GDP) in 2007. More generally, policymakers have been
8 focusing on transport infrastructure, in which ports are an important component, “as a key factor capable of fostering
9 territorial cohesion, mitigate economic disparities, favor economic development, and convergence” (Bottasso et al.,
10 2014).
11 A city that has a port with the functions of a water and land transportation hub is called a port city. The term city,
12 as used in this article, refers to a municipality, city or town established by the state according to the administrative
13 system. It includes areas in urban areas, suburbs, and urban administrative areas that require planning control due to
14 urban construction and development.
15 Port is an advantageous condition for the development of the port city. The production, operation, and development
16 of ports create direct output, national income, employment, and tax revenue for the city. The development of modern
17 industry and transportation have promoted the prosperity of the original port cities as well as the growth of new port
18 cities such as Shanghai, Qingdao, and Dalian in China. However, many Chinese ports are suffering from a capacity
19 surplus after years of expansion in context of global economic recession (Wen, 2016; Dan et al., 2018). While the
20 phenomenon arises from Chinese ports, it may apply to other port-city pairs globally. For example, the Belt and Road
21 Initiative is to improve the infrastructure along the line including port and railway with ambitious investment. Whether
22 such investment would be smart enough to avoid the capacity surplus problem should be concerned in a predictive
23 manner.
24 Multiple stakeholders have different interest orientations in such a decision context. For example, the investors need
25 to assess the prospective profitability of the invested target ports, while it is the port operators’ concern whether to
26 increase the service capacity for as usual or to introduce advanced technology to improve the efficiency. As the city
27 authorities, they are to determine how to plan the local economy structure to properly integrate with the port
28 development to ensure the long-term prosperity of their territory. A thorough discussion of the relationship between
29 port production and the local economic development help to provide insightful implications towards the
30 aforementioned concerns. The present study thus intends to find some quantitative empirical evidence to enrich the
31 understanding of the interaction between port and city.
32 Starting from identifying data stability of economic indicators and port indicators, the work proceeds with a panel
33 data regression model to check how strong the effects are, and then this paper studies the causality between city
34 economic development and the port production with a hypothesis test. The structure of the paper is organized as
35 follows: Section 2 details findings and limitations in the existing literature on the interaction between port and city,
36 while Section 3 explains the methods adopted in the study, followed by the empirical results interpretation and policy
37 implication discussion in Section 4. Finally, Section 5 concludes the work and direct future research.
38
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39 2. Literature review

40 A survey of the existing literature on the interaction of port production and regional economic development is
41 summarized in Table 1.
42 The economic promotion of the port to the port city is the most direct reflection of the port’s impact on the hinterland
43 economy. In recent decades, most coastal ports only serve a specific city, and port cities only need one port for
44 transport services (Hall and Jacobs, 2012). The field-intensity range method is used to analyze the radiation range of
45 the port economy. The empirical analysis in China shows that the strong radiation range of the port mainly covers the
46 port city area where it is located (Yang, 2014). The radiation capacity of ports varies from port to port by applying the
47 intensity model (Wang et al., 2015). Therefore, the precise range of port radiation cannot be judged, but the city level
48 served can be used as the main radiation range.
49 As the port city’s transport infrastructure, a port contributes to the city’s economic development from diverse
50 perspectives. For example, due to the geographical advantages of shipping, the shipping industry has reasonably
51 become the primary transportation industry in many European regions. Many scholars have studied the increasing
52 contribution of port logistics services in the harbor to the hinterland economy (Notteboom, 2008). Further research on
53 the role of distinct port activities, the decisive impact of port activities on the local economy has been confirmed by
54 analyzing the links between different port activities and other service sectors of the hinterland, based on the data
55 provided to the local authorities and the port operator in Abidjan (Essoh, 2013). Local economic development includes
56 not only GDP but also other key factors, such as population, area, intellectual properties, etc. witnessing the interaction
57 between port and city development (Bottasso et al., 2014). World trade has also been regarded to be a contributor
58 affected by ports, since the shipping industry plays a fundamental role in global import and export trade, as can be
59 seen from the causal relationship between world trade and port throughput in Rotterdam (Heijman et al., 2017). More
60 specifically, port throughput, as the most important measurement of the port service production, is most repeatedly
61 used to analyze the interaction mechanism between port and port city economy, and how it affects port city (Wen,
62 2016). The port serves not only the country but also the surrounding countries. Vanoutrive (2010) analyzes the impact
63 of Antwerp Port on the economies of its surrounding countries and finds that there is a dynamic relationship between
64 port throughput and GDP. Akhavan (2017) analyzes the developing process of Dubai as a specific pattern of port-city
65 development, compared to the European and Asian models. Wiegmans and Louw (2011) find that the development
66 pace of the port area is slowing down in the Port of Amsterdam, while the city behaves contrarily. Daamen and
67 Vries (2013) have analyzed the laws and regulations of 4 cities: Marseille, Barcelona, Hamburg, and Rotterdam,
68 and found the sustainability results of space projects through the conceptual framework. Feng (2015) adopts the
69 FMSR (Fast-Moderate-Slow-Recovery) model to investigate the relationship between port and city growth in
70 Hamburg and Antwerp and finds that policies can promote port-city interface. Aarts et al. (2012) study how city
71 and the port have found a joint development strategy for Rotterdam, which represents the emergence of a new
72 relationship between the port and the city.
73 Methodologically, most of the research focuses on a particular port with time-series data, as shown in Table 1,
74 while it should help policymakers to analyze and compare the contribution of ports in a certain region or country in a
75 horizontal direction to identify a more general pattern. Moreover, the cross-sectional dependence in panel data is
76 barely considered in the few existing horizontal panel data studies. In the port and port city economic development
77 research (Bottasso et al., 2014; Ferrari C et al., 2012; Wen, 2016; Xie, 2005; Xiong and Xu, 2017; Yu, 2007; Yu et
78 al., 2017; Yu et al., 2014), the stationarity test and the cointegration test both ignore the effect of the cross-section
79 dependence, which will reduce the effectiveness of these tests. Additionally, the development of the ports and port
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80 cities is dynamic (Yu, 2007), while there are few studies considering such dynamics through causality test (Xiong and
81 Xu, 2017). Also, other literature rarely studies the relationship between ports and other modes of transportation. This
82 article particularly discusses the influence of ports and other modes of transportation on port cities. The limitations of
83 the above research may be, on the one hand, due to the difficulty in data acquisition, and on the other hand, because
84 the panel data methods with cross-sectional dependence have just progressed lately. To solve the aforementioned
85 problems, the current study adopted the second-generation panel methods considering cross-sectional dependence,
86 i.e., the cross-sectionally Augmented Dickey-Fuller (CADF), the cross-sectionally Im-Pesaran-Shin (CIPS) unit root
87 tests, Generalized Method of Moments (GMM) method, and the Dumitrescu-Hurlin non-causality test. The dynamic
88 development of the port is formulated as a first-order-lag panel data regression model in this paper. Moreover, this
89 paper analyses the relationship between the level of port service and the industrial structure of port cities, which is the
90 basis for policymakers to formulate policies.

91 Table 1
92 A survey of the existing literature.
Study Study place Year Variable Methods Results

Dubai, in The 1900-

(Akhavan, 2017) PFAI, CT Four-phase model PFAI pushes city
United Arab 2010
Emirates
1978-
(Song and Mi, 2014) Shanghai, China PFAI, GDP ADF, E-G, ECM, Granger GDP  PFAI
2011

1984- ADF, Granger, VAR, GDT pushes PT, GDP 

(Bi et al., 2009) Shandong, China PT, GDP
2008 Johensan PT

1984-
(Zhu and Guo, 2016) Tianjin, China PT, FTIE, GDP ADF, Johansen, Granger PT  FTIE and GDP
2014

Hamburg and 1985- Policy impacts on port

(Feng, 2015) CT FMSR
Antwerp 2015 development

Lianyungang, 1988-
(Luo, 2013) PT, PI, SI, TI ADF, Johansen, Granger, PT  PI, SI, PT  TI
China 2007

1990- Ports cannot promote

(Jung, 2011) Korea E, PA, GDP Regression analysis
2008 regional economy

1990- PT, GDP, PI, SI, ADF, Granger, OLS, Grey

(Zhang, 2010) Tianjin, China PT  GDP, SI, TI
2009 TI relational model

1990- PT, GDP, PI, SI,

(Yu et al., 2014) 14 ports, China Grey relational model Staged development
2010 TI, CV, PV

1991- Grey relational model, ADF,

(Xia, 2012) Shanghai, China PT, GDP, FTIE PT  GDP, PT  FTIE
2010 E-G, ECM, Granger
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1992- PTF, GDP, I, TI,

(Essoh, 2013) Coated’Ivoire ADF, E-G, OLS, Granger PTF pushes GDP
2012 S, AO, BI, FTR

1992- PT pushes GDP, PT 

(Shen et al., 2012) Dalian, China PT, GDP ADF, E-G, Granger
2010 GDP

WT pushes PT, PT
Rotterdam, 1994- PT, WT, NJ,
(Heijman et al., 2017) KPSS, E-G, OLS promotes regional
Holland 2011 GDP
development
Antwerp, 1995- Correlation, Regression
(Vanoutrive, 2010) PT, GDP GDP pushes PT
Belgium 2009 analysis

1995- PT pushes GDP, PT 

(Zhang and Fan, 2016) Shanghai, China PT, GDP ADF, E-G
2014 GDP

1996- PPI, PTF, SOT, Coastal traffic volume

(Ghosh and De, 2001) India PCA, Regression analysis
1997 EVOUC rises

Logistic, Regression
1997-
(Ma and Liu, 2011) Dalian, China PT, GDP analysis, Input-output PT pushes GDP
2009
analysis

1998- PT, GDP, FI, IO, Grey relational model, VAR,

(Chen, 2017) Yangtze, China GDP and I push PT
2014 PV, PRI, I IRA

1998- Spatial fixed effect panel

(Bottasso et al., 2014) 621 TL-3 PT, GDP PT pushes GDP
2009 regression

1999- ADF, OLS, Residual ADF, PT pushes GDP, PT 

(Li, 2012) Liaoning, China PT, GDP
2010 Granger, ECM GDP

(Song and Geenhuizen, 4 regions in 1999- LLC, KAO, Regression Port infrastructure
GDP, PFAI, AO
2014) China 2010 analysis promotes regional
economy
116 ports in 2000- PT, NP, E, M, PT is positively correlated
(Ferrari C et al., 2012) System GMM
Europe 2006 NP with E

The port is closely linked

(Pardali, 2008) Greece Piraeus 2002 PT, UP Correlation coefficient
to the hinterland

2002- PT, CT, ATV, ECM, ADF, E-G, Regression

(Hui et al., 2004) Hong Kong PT will increase
2011 NCB analysis

LLC, IPS, ADF, PP, KAO,

2003-
(Wen, 2016) 9 ports globally DCD, GDP Johansen, Varying- DCD pushes GDP
2012
coefficient Models

2004- ADF, LLC, IPS, PP,

(Xiong and Xu, 2017) 14 ports, China PT, CT, GDP PT, CT  GDP
2014 Johansen, FE, Granger
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(Xie, 2005) 7 ports, China 2004 PT, GDP, CW, FI DEA, Regression analysis PT pushes GDP

(Daamen and Vries, 4 ports in PT, UP, PV, Laws and regulations
2010 Conceptual framework
2013) Europe Area, E dominate spatial outcomes

Economy is less dependent

(Yu et al., 2017) 97 ports globally 2011 FDI, GDP, NCR QAP, Regression analysis
on the port

(Wiegmans and Louw, Amsterdam,

21th Policy, firm Summary and analysis A new phase emerges
2011) Netherlands

(Aarts et al., 2012) Rotterdam 20th PT, CT Summary and analysis Joint development strategy

93 Note: PT (port throughput), GDP (gross domestic product), PI (primary Industry), SI (secondary industry), TI (tertiary industry), PFAI (port fixed
94 assets investment), FTIE (total foreign trade import and export), CT (contain throughput), FI (urban fixed asset investment), IO (total import and
95 export), PV (passenger traffic volume), PRI (premium income), I (industrial output), CW (city workforce), CV (cargo volume), DCD (degree of
96 coordinated development), NP (number of passengers), E (employment), M (motorway), NP (number of patents), ATV (American trade value),
97 NCB (number of container berth), UP (urban population), PPI (port performance indicator), PTF (port traffic flow), SOT (share of transoceanic
98 transport), EVOUC (economic value of unit capital), PA (port activity), FDI (foreign direct investment), NCR (number of container routes), AO
99 (agricultural output), S (the total retail sales of social consumer goods), BI (bank insurance), FTR (financial and tax revenue), WT (world trade),
100 NJ (number of job), ADF (Augmented Dickey-Fuller unit root test), OLS (ordinary least squares), IRA (impulse response analysis), E-G (Engle-
101 Grange cointegration), ECM (error correction mechanism), VAR (vector autoregression), LLC (Levin-Lin-Chu unit root test), IPS (Im-Pesaran-
102 Shin unit root test), PP (Phillips-Perron unit root test), FE (fixed effects), DEA (data envelopment analysis), GMM (generalized methods of
103 moments), PCA (principal component analysis), QAP (quadratic assignment problem), KPSS (Kwiatkowski-Phillips-Schmidt-Shin unit root test),
104 FMSR (Fast-Moderate-Slow-Recovery)  (bidirectional Ganger causality),  (unidirectional Granger causality).

105 3. Data and methodology

106 3.1. Data

107 Sixteen port-city pairs (Ningbo, Shanghai, Qingdao, Guangzhou, Tianjin, Dalian, Nanjing, Lianyungang, Suzhou,
108 Tangshan, Wenzhou, Yantai, Rizhao, Xiamen, Quanzhou, Zhanjiang) in China are selected as the sample. As indicated
109 in the previous section, the present study is conducted to figure out how the port and city interact from an economic
110 perspective. Variables thus were screened and determined accordingly with reference to the existing literature. Port
111 throughput (PT) refers to the total amount of goods by water transport, imported into the port area, and operated over
112 a specific period. Port throughput is the most fundamental measure of port and terminal production, which has been
113 most frequently used in port-related research. Port throughput is the most widely adopted key performance indicator
114 for the port production. Typically there are two kinds of port throughput in the census system (Bottasso et al., 2014;
115 Wen, 2016), the container throughput (measured in TEU), and the cargo throughput (usually measured in million
116 tons). In the current study, the latter is used since there are quite plenty of bulk goods such as grains, crude wood and
117 iron ore, which are physically or economically not appropriate for container transport. Additionally, in the census data
118 in China, the quantity of the goods by container transport is also converted and added to the cargo throughput. In the
119 following sections, the port throughput refers to the cargo throughput including the container throughput. Additionally,
120 the 16 ports are selected according to their cargo throughput which is over 70 million tons for coastal ones and over
121 50 million tons for inland ones. Regarding the economic indicators, GDP and total retail sales of consumer goods
122 (TRSCG) can measure the overall economic development level of the city. The total amount of social consumer goods
123 refers to the amount of non-production, non-operating physical goods directly sold by enterprises to individuals and
124 social groups through transactions, and the amount of income obtained from providing catering services. Besides, the
125 added value of the primary industry (PI), the added value of the secondary industry (SI), and the added value of the
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126 tertiary industry (TI) together reflect the economic structures of cities. According to the National Economic Industry
127 Classification (GB/T 4754-2011) (National Bureau of Statistics, 2013) and the Regulations on the Division of Three
128 Industries of China, primary industry refers to agriculture, forestry, animal husbandry and fishery (excluding
129 agriculture, forestry, animal husbandry, and fishery services), while secondary industry refers to the mining industry
130 (excluding mining support activities), manufacturing industry (excluding metal products, machinery and equipment
131 repair), electricity, heat, gas and water production and supply industry, and construction industry. Tertiary industry,
132 namely service industry, includes all other industries besides the primary industry and the secondary industry. Besides,
133 Freight turnover (FT) is calculated as the sum of the product of the number of goods (passengers) transported by
134 various means of transport and their corresponding transport distances in a given period. Freight turnover
135 comprehensively reflects the needs of the various sectors of the national economy for the transportation of goods
136 within a certain temporal range and the total amount of goods transported by the transport sector for the society.
137 The port throughput data is obtained from China Port Statistics Yearbook. The data of the economic indicators is
138 from the statistical yearbook of the corresponding cities. All the data ranges from the year 2000 to 2016 and is issued
139 by the authorities annually. Table 2 presents the descriptive statistics of the variables.

140

141 Table 2
142 Descriptive statistics of the variables.
Variable Obs. Mean Std.Dev. Max Min

PT 272 2.196 1.957 9.178 0.090

GDP 272 4713.401 4804.709 25123.450 209.510

PI 272 173.510 118.986 598.980 18.145

SI 272 2211.350 1980.513 8434.970 81.820

TI 272 2325.243 2921.565 17022.630 76.670

TRSCG 272 1719.801 1864.037 10946.570 57.878

FT 272 2587.280 4268.569 20427.000 7.070

143 Note: Port throughput: 100 million tons; GDP, PI, SI, TI, TRSCG: 100 million CNY; FT: 100 million kilometer*tons.

144 3.2. Methods and models

145 Cross-sectional dependence test

146 One of the achievements of the recent development of panel data econometrics is the introduction of common
147 unobservable impacts to describe the heterogeneity of unobservable time variations. This correlation between
148 heterogeneity of regression error terms introduced by the cross-sectional dependence can lead to inconsistencies and
149 incorrect derivations in the estimation of standard panel econometric methods. Due to the dependence between the
150 panel data sections, early panel unit root tests such as LLC (Levin-Lin-Chu unit root test) and IPS (Im-Pesaran-Shin
151 unit root test) suffer from serious scale distortion problems. One reason for this development may be that in the past
152 few decades, it has experienced the growing economic and financial integration of countries and financial entities,
153 which means that there is a strong interdependence among the various sectoral units. Inconsistencies and incorrect
154 derivations will result in the inaccuracy of estimation of standard panel econometric methods if the cross-sectional
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155 dependence is ignored. The above shows that testing the cross-sectional dependence is very important when estimating
156 the panel data model. This paper tests the cross-sectional dependence by Pesaran-CD. Pesaran (2004) proposed a
157 simple method for testing the cross-sectional dependence, which is obtained by averaging the correlation coefficients
158 of the residuals obtained from individual regressions. It is assumed that no sectional dependence exists in the panel
159 data. Then the hypothesis is tested with a statistic:

2T  N1  ˆ ij   N (0,1)
N
160 CD  
N ( N  1)  i 1 j  i 1  (1)

161 where i, j and T represent the port individual and time dimension. N represents the number of the pairs. 
ˆij is
162 related to the scaled residuals.
163
164 Panel unit root tests
165 If the panel data has cross-sectional dependence, the traditional panel data unit root test will be not suitable. It is the
166 scenario where the appropriate second-generation panel unit root test works.
167 Pesaran (2007) proposed a different approach to deal with cross-sectional dependence. The standard DF or ADF
168 regression is expanded with the cross-sectional average of the lag level and the first-order difference of the individual
169 series, instead of basing the unit root test on the bias of the estimation factor. The standard panel unit root test can
170 now be based on a simple average of the ADF statistics (represented by CADF). New asymptotic results are obtained
171 for a single CADF statistic and their simple mean called CIPS test. The results show that the unit root test of panel
172 data with cross-sectional dependence has satisfactory dimensions and power, even for relatively small values of N and
173 T. The CADF regression equation is:
n
174 yit   i   i yi ,t 1  iT   i , j yi ,t  j   it (2)
j 1

175 where yi,t represents the analyzed variables,  i,t is the error term, and  is the difference operator, and , T are
176 individual intercepts and time trends. n is the lag length.
177 The CADF regression equation of the above is performed for each section, and the t statistic of the parameter  i is
178 obtained. The mean of the t statistic is obtained to construct the test statistic, and the CIPS test statistic (Chen, 2010)
179 is calculated as follows:
N
 ti
180 C IP S  i 1

N (3)

181 Both tests perform the null hypothesis that all individuals within a panel data are not stationary versus the alternative
182 hypothesis that at least one individual is stationary.
183
184 Generalized Method of Moments
185 The simplest method, which is more suitable for cross-sectional analysis than panel data analysis, is pooled ordinary
186 least squares. However, such a treatment cannot explain the time-series dimension of the data because it puts all the
187 observations together to form a “pool.” The pool causes two major defects: (1) due to failure to account for unobserved
188 individual fixed effects, resulting in omitted variable deviations, which are then obtained from the error term, (2)
189 because of the failure to control potential endogeneity problems, the correlation between some independent variables
190 and individual fixed effects is again found in the error term. The fixed effects approach is thus designed to control
191 unobserved individual-fixed and time-invariant effects in the data. It corrects the possible correlation between these
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192 effects and some independent variables, adjusting them by deviating from the time-averaged sample mean. The result
193 of applying fixed effects approach is that the dependent variable is deprived of its long-term variation and this
194 approach may not be suitable for studying dynamic panel data (Doytch and Uctum, 2011). The correlation between
195 the dependent variable and the unobserved residual is the reason why the panel data prefers the cross-section when
196 analyzing the growth effect. Therefore, if such a correlation exists, and the true underlying structure is dynamic, the
197 deviations that are caused by the time-averaged cross-section method cannot be eliminated by controlling the fixed
198 effect. Therefore, to avoid these defects, this paper emphasizes the importance of using the GMM method.
199 Both the Arellano-Bond difference GMM and the Blundell-Bond system GMM are specifically designed to capture
200 the joint endogeneity of individual explanatory variables by creating an “internal” tool matrix. The Arellano-Bond
201 difference GMM uses the observed value of the lag level as a tool for the difference variable. The Blundell-Bond
202 System GMM uses hysteresis level observations as a tool for differential and horizontal variables. A necessary
203 condition for the difference and system GMM is that the error term does not have a second-order sequence correlation.
204 Otherwise, the estimated standard error will increase without limit. For this reason, Arellano and Bond developed a
205 second-order autocorrelation test (Arellano and Bond, 1991). The GMM estimation method is to define the criterion
206 function as a correlation function between the instrument variable and the disturbance term so that it minimizes the
207 estimated error of the parameter.
208 Panel data regression model
209 Scholars have explored the interaction mechanism between ports and cities, but most studies are static analysis,
210 barely considering port dynamics. The development process of the port usually is continuous and dynamic. The service
211 level of the port in the previous year will have an impact on the actual results of the operation of the port next year.
212 The “dynamic capability” of a port determines the future development potential of the port and the competition status
213 and level of the port for a long period (Yu, 2007). Therefore, this paper introduces the first-order lag items of port
214 throughput to describe the dynamic state of the port as an independent variable in the equation. The port city economic
215 factors which affect port throughput can be divided into two categories according to the overall and various industries
216 (referring to the research listed in Table 1): one is the overall economic factor of the port city, and the other is the
217 industrial structure of the port city (Huang, 2011). Also, the freight turnover is added to the equation to reflect both
218 the volume of goods transported and the level of socio-economic development. Therefore, to explore the relationship
219 between port throughput and the overall indicator of the port city economy, such as GDP and TRSCG, the following
220 dynamic panel model is constructed:

221 PTit  1PTit1  2GDPit  3TRSCGit  4FTit i  ui it

(7)
222 Also, the relationship between port throughput and the added value of the city’s primary industry, secondary
223 industry, and the tertiary industry is further explored, and the following dynamic panel model is constructed as:

224 PTit  5PTit1  6PIit  7SIit  8TIit  9FTit i  ui it (8)
225 where i and t represent the port individual and time dimension.  i represents the fixed effect of a port city,
226 which is not observed to change over time. u i represents the year effect and indicates the impact of the
227 macroeconomic form in which the port city is located.  it indicates the error term.  1 ,  2 ,  3 , ,  9 respectively
228 represent the corresponding coefficients. The data is taken as a natural logarithm form for the convenience of results
229 interpretation.
230
231 Dumitrescu and Hurlin Granger causality test
232 The causal analysis of the relationship between port throughput and the port city economy is very important for the
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233 development of port cities and ports. Considering the heterogeneity of the panel data, this paper explores the causal
234 relationship between port throughput and port city economic indicators through the panel data Granger causality test
235 proposed by (Dumitrescu and Hurlin, 2012). This test is suitable for N > T and N < T and is equally applicable to
236 panel data with cross-sectional dependence. The causal test model is as follows:

237 yi,t  i  iK1 i(k ) yi,t k  iK1 i(k ) xi,t k  i,t

(4)
238 where K  N and K  N , and the intercept term is represented by  i , and the lag term coefficient is represented
* 

239 by  i ( k ) and  i ( k ) , and the error term is represented with  i ,t . The null hypothesis is that there is no consistent Granger
240 causality, and the alternative hypothesis is that there is at least an individual's Granger causality:

241 H0 : i  0 (5)
  i  0 i  1, 2, N
H1 : 
242   i  0 i  N1  1, N1  2, N (6)
243

244 4. Empirical results and discussion

245 This section first reports the empirical results of the panel data regression model, the causality test, and then
246 interprets the policy implications from the quantitative results.

247 4.1. Cross-sectional independence test and panel unit root tests

248 The results of the cross-sectional dependence test are shown in Table 3. All variables reject the null hypothesis,
249 i.e., cross-sectional dependence is detected for every variable. Hence the second-generation panel unit root tests
250 (CADF and CIPS) are appropriate.

251 Table 3
252 Results from Pesaran’s cross-sectional independence test.
LNPT LNGDP LNPI LNSI LNTI LNTRSCG LNFT
CD-test 41.875*** 44.931*** 42.210*** 44.756*** 43.927*** 45.069*** 26.948***
P-value 0.00 0.00 0.00 0.00 0.00 0.00 0.00
253 Note: *, **, *** significant at 10%, 5% and 1%, respectively.

254 Table 4
255 Results from panel unit root tests.
LNPT LNGDP LNPI LNSI LNTI LNTRSCG LNFT
CADF -2.431 *** -2.297 -2.938 *** -2.012 -1.759 -2.990 *** -2.053
CIPS -2.45 -1.976 -2.778** -1.922 -1.974 -2.435 -2.103
256 Note: *, **, *** significant at 10%, 5% and 1%, respectively.

257 The results of the stationarity test on panel data with cross-sectional dependence are shown in Table 4. It is shown
258 that the null hypothesis (unit root does not exist) is rejected for all variables except PI, indicating that only the PI series
259 could be regarded as stationary statistically. When the non-stationary time series is used for regression analysis,
260 pseudo-regression is prone to occur, resulting in incorrect results. Therefore, all the variables should be the first-order
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261 differentiated and then used for regression analysis.

262 Cross-sectional correlation detection is performed again for the differentiated data. Test results in Table 5, it can
263 be seen that the data still has strong cross-sectional dependence. Therefore, the unit root test should be performed
264 again.

265 Table 5
266 Results from Pesaran’s cross-sectional independence test.
DLNPT DLNGDP DLNPI DLNSI DLNTI DLNTRSCG DLNFT
CD-test 15.001*** 30.211 *** 18.769*** 31.311*** 17.081*** 26.850*** 5.706***
P-value 0.00 0.00 0.00 0.00 0.00 0.00 0.00
267 Note: *, **, *** significant at 10%, 5% and 1%, respectively.

268 The results (Table 6) reject the null hypothesis of the unit root existence at a 1% level of significance, so the data
269 in the panel is stationary, and the regression estimation can be directly performed.

270 Table 6
271 Results from panel unit root tests.
DLNPT DLNGDP DLNPI DLNSI DLNTI DLNTRSCG DLNFT
CADF -3.969*** -3.179*** -3.846*** -2.975*** -3.386*** -3.871*** -3.910***
CIPS -3.969*** -3.179*** -3.846*** -2.975*** -3.386*** -3.871*** -3.910***
272 Note: *, **, *** significant at 10%, 5% and 1%, respectively.
273

274 4.2 Multicollinearity diagnosis

275 Given that PI, SI, TI, FT and/or their difference may be intrinsically determined by some factors in common, a
276 multicollinearity problem may rise in the regression analysis and result in a biased estimation.
277 To examine the argument, we conducted a multicollinearity diagnosis with two indicators, i.e., the variance inflation
278 factor (VIF)(Hair et al.,2019; Castillo-Manzano et al., 2015) and the condition number (CN)(Chatterjee and Ali, 2012;
279 Brand and John, 2010). VIF is calculated for each model specification while CN for each model. Both statistics are
280 obtained with the collin command (Ender, 2020) in STATA. The results are reported in Table 7.
281
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282 Table 7
283 Multicollinearity diagnosis results.
Model 1 2 3 4 5 6 7 8 9 10
VIF(Lag_1.PT) 1.12 1.12 1.13 1.13 1.10 1.10 1.13 1.13 1.12 1.12
VIF(GDP) 1.39 1.14 — — 1.10 1.10 — — 1.14 1.39
VIF(TRSCG) 1.32 — — — — — — — — 1.32
VIF(PI) — — 1.09 1.09 — — 1.09 1.09 — —
VIF(SI) — — 1.25 1.21 — — 1.21 1.25 — —
VIF(TI) — — 1.05 1.05 — — 1.05 1.05 — —
VIF(FT) 1.07 1.06 1.07 — — — — 1.07 1.06 1.07
Condition
9.69 5.85 4.98 4.77 5.51 1.37 1.58 1.66 1.45 1.89
number
284 Note: Model 1 and 10, model 2 and 9, model 3 and 8, model 4 and 7, model 5 and 6 share a model specification respectively,
285 thus each model in a pair has the same VIF values.

286 As rules of thumb, severe multicollinearity would be detected if VIF is greater than 10(Hair et al.,2019; Castillo-
287 Manzano et al., 2015), or CN is greater than 15(Chatterjee and Ali, 2012; Brand and John, 2010). The statistics for
288 the current study are all well below the corresponding critical values (see Table 7), and thus the multicollinearity is
289 not statistically significant.
290 Meanwhile, panel data analysis is applied to model the relationships between the port throughput and the
291 independents considering the cross-section effects and period effects. According to the econometric literature, one
292 advantage of panel data model is reducing problems of data multicollinearity by increasing degrees of freedom and
293 thus eliminating or reducing estimation bias. Hence, the potential multicollinearity issue is further improved from the
294 modeling perspective (Hsiao, 2014).
295 To sum up, the multicollinearity among the explanatory variables in the current study should not be problematic.
296

297 4.3 Elasticity estimates

298 This part would examine the relationship between port throughput and various economic indicators of port cities
299 and the strength of such impacts.
300 As discussed in Table 6, all the variables in Table 8 are differentiated. This method is often used to process panel
301 data (Song and Sung, 2014). The difference GMM and the system GMM method are both used with one-step and two-
302 step techniques respectively to perform the regression analysis. The results obtained by the difference GMM with the
303 system GMM method are different in Table 8. The coefficients of the latter approach are estimated with a higher
304 significance level and thus is adopted as the model parameters. As can be seen from Table 8, all models reject the null
305 hypothesis AR (1), i.e., the residuals are autocorrelated. For AR (2), neither the Hansen test nor the Sargan test rejects
306 the null hypothesis, so the dynamics set by the model cannot be rejected. The results of the AR (2) test indicate that
307 there is no further autocorrelation in the residuals. The validity of the instrumental variables used in each model is
308 thus confirmed.
309
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310 Table 8
311 Panel data regression model estimation results.
Model 1 2 3 4 5 6 7 8 9 10
Cons 0.002 -0.072*** 0.078** -0.046 -0.116*** — — — — —

Lag_1.PT -0.500*** -0.192*** -0.680*** -0.263** -0.199*** -0.257** -0.618*** -0.301*** -0.244 -0.467**

(-2.06) (-7.75) (13.52) (-2.18) (-12.38) (-2.55) (-7.43) (-2.93) (-6.09) (-2.03)

GDP 2.79*** 1.540*** — — 2.059*** 2.159*** — — 1.719*** 3.639***

(4.37) (6.38) (28.42) (11.83) (7.14) (3.28)

TRSCG -1.26* — — — — — — — — -2.786**

(-1.69) (-2.07)

PI — — -2.400*** -0.474** — — -1.039** -1.019** — —

(-7.10) (-2.49) (-2.11) (-2.22)

SI — — 2.667*** 2.019*** — — 3.029*** 1.892*** — —

(15.54) (7.01) (12.26) (8.83)

TI — — -0.435* -0.159 — — -0.776** -0.371* — —

(-1.62) (-0.39) (0.336) (-1.76)

FT 0.008 0.188 0.275 — — — — 0.239*** 0.235*** 0.024

(0.09) (2.24) (4.30) (3.01) (3.30) (0.19)

Obs. 240 240 240 240 240 224 224 224 224 224

AR (1) 0.059 0.066 0.023 0.021 0.054 0.043 0.008 0.013 0.63 0.017

(-1.89) (-1.84) (-2.27) (-2.32) (-1.93) (-2.03) (-2.64) (-2.49) (-1.86) (-2.39)

AR (2) 0.348 0.713 0.875 0.964 0.930 0.906 0.316 0.710 0.926 0.265

(-0.94) (0.37) (-0.16) (-0.05) (0.09) (-0.12) (-1.00) (0.37) (0.09) (-1.12)

Instr. 15 12 17 16 13 11 12 14 11 14

Sargan 0.158 0.289 0.967 0.548 0.363 0.283 0.823 0.843 0.269 0.297

test (14.35) (9.68) (4.09) (9.80) (10.93) (10.89) (4.36) (4.90) (9.95) (11.82)

Hansen 0.391 0.136 0.705 0.578 0.249 0.185 0.418 0.794 0.187 0.449

test (10.59) (12.36) (8.09) (9.48) 12.57 12.53 8.16 5.44 11.27 9.90

312 Note: *, **, *** significant at 10%, 5% and 1%, respectively.

313 It is quite common to see regression-based research with social-economic indicators as variables suffering from
314 endogeneity issues since the indicators have a widely existing intrinsic correlation. However, the issue could be
315 mitigated, if not solved, with proper model specification. In the present study, the panel data regression model, which
316 is superior to pooled regression in time-invariant unobserved factors caused endogeneity treatment is adopted.
对于
317 Meanwhile, the differentiating procedure for stationary series deal with the cross-section specific endogeneity. With
318 all these treatments, the endogeneity may still exist if the error term in the regression model correlates with the
319 explanatory variables. However, the existence of such endogeneity could be tested with Hausman test for panel
320 data(Xu, 2015). The results for model (1)-(5) could be seen in Table 8. With all P-values to be far larger than 0.1, it
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321 should be safe to declare that the endogeneity caused by the correlation between the error terms with the explanatory
322 variables are statistically insignificant.

323 Table 9
324 Results from the panel Hausman test.
1 2 3 4 5
Hausman test (1.61) (1.66) (1.15) (0.72) (1.04)
P-value 0.807 0.646 0.950 0.949 0.594

325 According to the models (1) - (10) in Table 8, it can be seen that the growth rate of port throughput is gradually
326 decreasing. The demand for ports in port cities is increasing, but the rate of increase is slowing down. It can be argued
327 that a reduction in internal demand or a lack of demand for external imports may be an important cause of this result.
328 From the perspective of the overall port city economy, according to the estimated model (1) and (2), if the growth
329 rate of GDP increases by one percent, the growth rate of port throughput will increase by 2.790 and 1.540 percent. It
330 confirms that there is a positive relationship between the GDP of port cities and the port throughput of the
331 corresponding ports. Intuitively, an increase in the social fortunate (in terms of GDP) would accompany an increase
332 in global trade, which would further drive the port throughput. Model (5) is to examine the coefficient variation of the
333 model in the absence of variables for FT. The results show that the positive relationship between GDP and port
334 throughput does not change. Besides, port throughput has a negative relationship with TRSCG. If the TRSCG
335 increases by one percent, the throughput will decrease by 1.26 percent, according to model (1). For this relationship,
336 the study argues that, first of all, the TRSCG is a measure of non-production, non-operating physical goods directly
337 sold by enterprises, while most port cargo is for import and export and thus not included directly in this indicator.
338 Then, the indicator has an inverse relationship with port throughput may at least partly because the goods transported
339 by ship are generally bulk cargo, loose grain groceries, containers, etc. For example, most of the coal transported by
340 the port is not directly sold by the enterprises to terminal consumers and thus cannot be directly added to the indicator.
341 To be more specific, the more coal is imported from abroad, the fewer coal sales are provided by the city’s local
342 production.
343 From the perspective of economic structure, model (3) and model (4) explain the relationship between the growth
344 rate of the three major industries and the growth rate of the port throughput in the case of the freight turnover as the
345 variable and the non-variable. The results show that the port throughput has a negative growth relationship with the
346 primary industry and the tertiary industry, and there is a strong positive relationship between the port throughput and
347 the secondary industry. If the growth rate of the primary industry increases by 1 percent, the port throughput growth
348 rate will decrease by 2.4 percent. It may because grain, fishery, and timber transported by the port may have a
349 competitive relationship with the goods produced in the port city, taking into account the substitutability between the
350 primary industry and the types of goods transported in the port. For example, an increase in food production in port
351 cities is bound to reduce the need to import food from outside. Therefore, the negative relationship between the
352 primary industry and port throughput is reasonable. The coefficient between the third industry and the port throughput
353 is not significant, which means a close relationship between port throughput and the tertiary industry is not supported
354 by the sampled data. However, the strong positive relationship between port throughput and the secondary industry
355 indicates that the port significantly supports the development of the secondary industry of its located city. The
356 contribution may originate from the fact that the secondary industry is the main consumer of industrial raw materials
357 and energy (Li, 2009). It has become a national policy to import necessary strategic resources globally; hence, the
358 result that the port throughput rises with the value of the second industry could be expected.
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359 Model (6) – (10) use the difference GMM estimation method corresponding to model (1) – (5). The results of the
360 models are in the same direction as the coefficients of the model (1) - (5), which also verifies the accuracy of the data
361 and model estimation.

362 4.4 Causality analysis

363 The causal relationship between the economic variables and port throughput is explained in this part. The results of
364 the Dumitrescu - Hurlin causality test are shown in Table 10.
365 According to the tests, port throughput has a two-way causality with GDP and the added value of the primary
366 industry both. The results of causality tests have logically confirmed the possibility, as previously discussed.
367 The added value of the secondary industry is the one-way cause and thus can be used as a statistical predictor of port
368 throughput. The reason may be that the needs of the secondary industry in the port city will be transported through the
369 port partly, which will lead to a strong impact on the port throughput. However, port throughput is not a statistically
370 significant result of the secondary industry. It is argued that maritime transport is not a supporting force of the
371 development of the secondary industry of the port city. The port throughput is a one-way cause of the added value of
372 the tertiary industry, which may explain the marginally significant correlation between the two variables in the
373 regression analysis. It makes sense since, on the one hand, shipping as a major mode of transportation that belongs to
374 the tertiary industry while, on the other hand it also promotes the development of other sectors of the tertiary industry.
375 As for the causal relationship between port throughput and TRSCG, the target measured by the TRSCG in the elasticity
376 analysis does not directly include port throughput, while the causal relationship between them is neither detected.
377 There is no causal relationship between port throughput and freight turnover. It may be due to China’s land
378 transportation, and air transportation is both developing rapidly. Even if shipping accounts for a certain proportion in
379 port cities, land transportation and other modes of transportation have far surpassed the shipping transportation in
380 volume.
381 Part of the test results is consistent with some existing studies, for example, (Xiong and Xu, 2017). In summary, an
382 interactive mechanism between the port city economy and the port throughput in the sampled city-port pairs is
383 confirmed. However, the port cannot be considered as a major contributor to the development of port cities.
384
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385 Table 10
386 Dumitrescu - Hurlin panel causality tests.
Null Hypothesis W-Stat. Zbar-Stat. Prob. Lags Conclusion
PT  GDP 2.2522 11.8217 0.03 PT  GDP
1
GDP  PT 2.0100 5.0452 0.10 GDP  PT
PT  PI 4.1541 9.4539 0.07 PT  PI
0/2
PI  PT 4.0819 3.4944 0.08 PI  PT
PT  SI 1.7453 8.1323 0.27 No causality
1
SI  PT 2.0776 6.3957 0.08 SI  PT
PT  TI 2.6442 15.1595 0.00 PT  TI
1
TI  PT 1.3325 2.8116 0.79 No causality
PT  TRSCG 0.7234 27.5973 0.34 No causality
1
TRSCG  PT 1.1134 3.3860 0.86 No causality
PT  FT 1.3377 0.2769 0.78 No causality
1
FT  PT 1.3402 0.2818 0.77 No causality

387 5. Discussion and conclusions

388 With the panel data regression model and causality analysis, the present study investigates the interaction between
389 port production performance and the city’s socio-economic development. The work contributes to the existing
390 literature both methodologically and practically. The cross-section dependence, which may cause pseudo regression
391 and decrease the test power of the stationarity test and the cointegration test, is overcomed with the most recent
392 developed GMM estimator and the Dumitrescu and Hurlin Granger causality test respectively. The adopted modeling
393 techniques is more reliable and easy to follow in any other panel data analysis context. When it comes to the practical
394 contribution, the findings clarify that all three main stakeholders, i.e., the investors, the port operators and the city
395 authority needs to think and promote appropriate integration of the city-port pair. To be specific, from a scale’s
396 perspective, the two-way causality between port throughput and GDP indicates the production capacity of the port
397 should be decided according to the production capability of its hinterland to avoid any possible capacity surplus, which
398 may help the investment decision for the investor and the operator. At the same time, an efficient port production will
399 contribute to the prosperity of the local city.
400 When seen from an industrial structure perspective, the present study has found that the primary industry has a two-
401 way causality with port throughput, while a one-way causality from secondary industry production to port throughput
402 is detected. Meanwhile, both total retail sales of consumer goods and freight turnover do not show any significant
403 causal relationship with port throughput. The authors argue such findings are reasonable in context of global recession
404 and the industry transformation and upgrading of China in recent decades. Traditionally famous as the World Factory,
405 China has been importing various resources and exporting industrial products globally. However, as manufacturing is
406 redistributed worldwide, the export of the Made-in-China industrial products is decreasing. Meanwhile, resources,
407 including food, fruit, energy, and minerals are still imported to meet the consumption demand of the Chinese people,
408 sustaining the production of the primary industry. At the same time, domestic consumption and production (in terms
409 of total retail sales of consumer goods and freight turnover), as one of the troika, has taken the responsibility to stabilize
410 the economy and decouple with port production as symbol of export. The authors have also noted the port production
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411 accompanies the development of the tertiary industry, which may root from the fact that the port initiates a demand
412 for supply chain including logistics and storage.

413 Hence, in the long term, the port production capacity expansion oriented investment should be evaluated with
414 caution. Nevertheless, it should be a good trial to improve the transport connections between the port and its potential
415 hinterland to increase the service coverage for a larger and more diverse export/import demand. Meanwhile, it would
416 help if the city with a port could make full use of its advantage in spatial proximity to develop the port oriented service
417 chain and share the value that is created.

418 Despite the insightful results, the study leaves ample room for improvement in future research. For example, a more
419 detailed classification of the industrial sectors rather than the current three-industry would empower a deeper
420 discussion of the interaction between a port and the economy of its base city. Moreover, the current study focuses on
421 the freight transport function of the port, while in most cases, passenger transport also plays an important role in port
422 production. To be specific, the cruise tourism is becoming popular in China in recent years. The port city has inborn
423 advantages to promote the emerging industry, which may further promote the related revenue. Due to the limited data,
424 such a hypothesis is barely empirically investigated in context of China, although it is a worth noting topic.

425
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Author Statement

Long-ze Cong: Data collection, Methodology, Software, Original

draft preparation;

Dong Zhang: Conceptualization, Funding acquisition, Methodology,

Original draft preparation, Writing- Reviewing and Editing;

Ming-li Wang: Data collection, Methodology, Software;

Hong-feng Xu: Methodology, Writing- Reviewing and Editing;

Li Li: Conceptualization, Funding acquisition.

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Highlights

1. The interaction between port production and the port city development is
investigated with panel data.
2. The second-generation panel method considering cross-sectional dependence is
adopted.
3. In context of global recession, new investment into port capacity expansion should
be proposed with caution.
4. The port could promote the development of the tertiary industry of the city.