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Can Growth Compensate Inequality and Risk?---a welfare analysis for Chinese households

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  • Cao, Heping
  • Ligon, Ethan
  • Meng, Xiangyi

Abstract

It has been widely observed that China’'s break-neck growth has not been equally shared between rural and urban areas, with urban households' enjoying a much larger proportion. To further test whether regional inequality exists within urban areas, we measure urban households’ vulnerability in a risky environment and decompose this measure to quantify China aggregate risks, province-level risks and idiosyncratic risks faced by households situated in 31 provinces. Besides, under this framework of analysis, we are able to make welfare comparisons between growth, inequality and different risks. We find that inequality has very big negative effect on households'’ welfare, while growth is able to compensate nearly half of it; households seem to be able to smooth consumption against risk in both province and individual level, but unable to do so against China shocks, which affect all the households simultaneously.

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File URL: http://purl.umn.edu/21458
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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2006 Annual meeting, July 23-26, Long Beach, CA with number 21458.

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Date of creation: 2006
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Handle: RePEc:ags:aaea06:21458

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Keywords: Community/Rural/Urban Development; Risk and Uncertainty;

References

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  1. Kanbur, Ravi & Zhang, Xiaobo, 2001. "Fifty Years of Regional Inequality in China: A Journey through Revolution, Reform and Openness," CEPR Discussion Papers 2887, C.E.P.R. Discussion Papers.
  2. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
  3. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  4. Ligon, Ethan & Laura Schechter, 2002. "Measuring Vulnerability," Royal Economic Society Annual Conference 2002 128, Royal Economic Society.
  5. Derek C. Jones & Cheng Li & Ann L. Owen*, 2003. "Growth and Regional Inequality in China During the Reform Era," William Davidson Institute Working Papers Series 2003-561, William Davidson Institute at the University of Michigan.
  6. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  7. Ravallion, Martin & Shaohua Chen, 2004. "China's (uneven) progress against poverty," Policy Research Working Paper Series 3408, The World Bank.
  8. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  9. Ethan Ligon, 2007. "Risk and the Evolution of Inequality in China in an Era of Globalization," NBER Chapters, in: Globalization and Poverty, pages 599-628 National Bureau of Economic Research, Inc.
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