Rural Income Volatility and Inequality in China
AbstractAvailable data indicates a growing urban-rural income gap (the ratio of mean urban to rural incomes) with a significant increase from around 1.8 in the late 1980's to over 3 today. These estimates do not take into account the higher volatility of rural incomes in China. Current literature based on analyses of rural income volatility in China decomposes poverty into chronic and transient components using longitudinal survey data and assesses the fraction of the Foster, Greer and Thorbecke poverty gap attributable to mean income over time being below the poverty line. Resulting estimates of 40-50 % transient poverty point to the policy conclusion that poverty may be a less serious social problem than it appears in annual data due to rural income volatility. Here we use a direct method instead to adjust rural income for volatility using a certainty equivalent income measure and recompute summary statistics for the distribution of volatility corrected incomes, including the urban-rural income gap on which much of current poverty debate in China focuses. Since an uncertain income stream is worth less in utility terms than a certain income stream we argue that heightened rural volatility increases the effective urban-rural income gap and intensifies not weakens poverty concerns. Using Chinese longitudinal rural survey data for which current decompositions can be replicated, we make adjustments for certainty equivalence of rural household income streams which not only widen the urban-rural income gap in China but also increases other distributional summary statistics. Depending upon values used for the coefficient of relative risk aversion, the measured urban-rural income gap increases by 20-30% using a certainty equivalent measure to adjust rural incomes for volatility. We also conduct similar analyses using consumption data, for which slightly larger increases occur.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12779.
Date of creation: Dec 2006
Date of revision:
Publication status: published as John Whalley & Ximing Yue, 2009. "Rural Income Volatility and Inequality in China," CESifo Economic Studies, Oxford University Press, vol. 55(3-4), pages 648-668.
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- O20 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - General
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
This paper has been announced in the following NEP Reports:
- NEP-AGR-2007-01-02 (Agricultural Economics)
- NEP-ALL-2007-01-02 (All new papers)
- NEP-CNA-2007-01-02 (China)
- NEP-DEV-2007-01-02 (Development)
- NEP-SEA-2007-01-02 (South East Asia)
- NEP-TRA-2007-01-02 (Transition Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sicular, Terry & Yue, Ximing & Gustafsson, Bjorn & Li, Shi, 2006.
"The Urban-Rural Income Gap and Inequality in China,"
Working Paper Series
RP2006/135, World Institute for Development Economic Research (UNU-WIDER).
- Terry Sicular & Yue Ximing & Björn Gustafsson & Li Shi, 2007. "The Urban-Rural Income Gap And Inequality In China," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(1), pages 93-126, 03.
- Jonathan Morduch, 1995.
"Income Smoothing and Consumption Smoothing,"
Journal of Economic Perspectives,
American Economic Association, vol. 9(3), pages 103-114, Summer.
- Morduch, J., 1995. "Income Smoothing and Consumption Smoothing," Papers 512, Harvard - Institute for International Development.
- Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Harvard Institute of Economic Research Working Papers 1727, Harvard - Institute of Economic Research.
- Jalan, Jyotsna & Ravallion, Martin, 1998. "Transient Poverty in Postreform Rural China," Journal of Comparative Economics, Elsevier, vol. 26(2), pages 338-357, June.
- Raj Chetty, 2006.
"A New Method of Estimating Risk Aversion,"
American Economic Review,
American Economic Association, vol. 96(5), pages 1821-1834, December.
- Joan R. Rodgers & John L. Rodgers, 1993. "Chronic Poverty in the United States," Journal of Human Resources, University of Wisconsin Press, vol. 28(1), pages 25-54.
- Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
- Raj Chetty, 2006. "A Bound on Risk Aversion Using Labor Supply Elasticities," NBER Working Papers 12067, National Bureau of Economic Research, Inc.
- Ravallion, Martin, 1988. "Expected Poverty under Risk-Induced Welfare Variability," Economic Journal, Royal Economic Society, vol. 98(393), pages 1171-82, December.
- Chen, Shaohua & Ravallion, Martin, 1996. "Data in transition: Assessing rural living standards in Southern China," China Economic Review, Elsevier, vol. 7(1), pages 23-56.
- Zhao, Zhong, 2007.
"Earnings Instability and Earnings Inequality in Urban China: 1989–2006,"
IZA Discussion Papers
3270, Institute for the Study of Labor (IZA).
- Zhong Zhao, 2010. "Earnings Instability and Earnings Inequality in Urban China: 1989–2006," Working Papers id:2783, eSocialSciences.
- Chen, Xi & Zhang, Xiaobo, 2009. "The Distribution of Income and Well-Being in Rural China: A Survey of Panel Data Sets, Studies and New Directions," MPRA Paper 20587, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.