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The Evolution of Income Inequality in Rural China

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  • Dwayne Benjamin
  • Loren Brandt
  • John Giles

Abstract

We document the evolution of the income distribution in rural China, from 1987 through 1999, with an emphasis on investigating increases in inequality associated with transition and economic development. With a backdrop of perceived improvements in average living standards, we ask whether increases of inequality may have offset, or even threaten welfare gains associated with economic reforms. The centerpiece of the paper is an empirical analysis based on a set of household surveys conducted by the China s Research Center for Rural Economy (RCRE) in Beijing. These surveys permit us to construct a set of comparable estimates of household income and consumption from a panel of over 100 villages from nine Chinese provinces. We provide a variety of summary statistics, including Gini coefficients, as well as more nonparametric summaries of the income distribution (i.e., Lorenz curves). In addition, we decompose the sources of inequality, exploring the contributions of spatial inequality to overall inequality, and the role of non-agricultural incomes in explaining rising dispersion of incomes. We find that the distribution of income improved by most measures during the early part of the period, as average incomes rose substantially with only a modest increase in inequality. However, the distribution has worsened significantly since 1995, with rising inequality, and falling absolute incomes, especially at the bottom end of the income distribution. We attribute most of the recent decline in welfare to collapsing agricultural incomes, pr obably brought about by lower farm prices. At the same time, increasing non-farm incomes have widened the gaps between those with and without access to nonagricultural opportunities. Based on explorations with different data sets, our RCRE-based results probably understate the divergence due to non-agricultural income growth and the increase in inequality over time. Our results highlight the need for further evaluation of the role of farming as a source of income in the countryside, and also underline the limitations of a land-based (and essentially grain-based) income support and redistribution mechanisms.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number benjamin-04-01.

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Length: 99999 pages
Date of creation: 23 Dec 2003
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Handle: RePEc:tor:tecipa:benjamin-04-01

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Keywords: Rural inequality; China; welfare and transition; poverty; farm incomes.;

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References

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  1. Banerjee, Abhijit V & Duflo, Esther, 2003. " Inequality and Growth: What Can the Data Say?," Journal of Economic Growth, Springer, Springer, vol. 8(3), pages 267-99, September.
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  3. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, World Bank Group, vol. 10(3), pages 565-91, September.
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  8. Gustafsson, Bjorn & Shi, Li, 2002. "Income inequality within and across counties in rural China 1988 and 1995," Journal of Development Economics, Elsevier, Elsevier, vol. 69(1), pages 179-204, October.
  9. Jeff Dayton-Johnson & Pranab Bardhan, 2002. "Inequality And Conservation On The Local Commons: A Theoretical Exercise," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(481), pages 577-602, July.
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  15. Ravallion, Martin & Chen, Shaohua, 1999. " When Economic Reform Is Faster Than Statistical Reform: Measuring and Explaining Income Inequality in Rural China," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(1), pages 33-56, February.
  16. Haddad, Lawrence & Kanbur, Ravi, 1990. "How Serious Is the Neglect of Intra-Household Inequality?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(402), pages 866-81, September.
  17. Benjamin, Dwayne & Brandt, Loren, 1997. "Land, Factor Markets, and Inequality in Rural China: Historical Evidence," Explorations in Economic History, Elsevier, Elsevier, vol. 34(4), pages 460-494, October.
  18. Cai, Fang & Wang, Dewen & Du, Yang, 2002. "Regional disparity and economic growth in China: The impact of labor market distortions," China Economic Review, Elsevier, Elsevier, vol. 13(2-3), pages 197-212.
  19. Kanbur, Ravi & Zhang, Xiaobo, 1999. "Which Regional Inequality? The Evolution of Rural-Urban and Inland-Coastal Inequality in China from 1983 to 1995," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 686-701, December.
  20. Shorrocks, Anthony F, 1983. "The Impact of Income Components on the Distribution of Family Incomes," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(2), pages 311-26, May.
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  22. Ravallion, Martin & Shaohua Chen, 1998. "When economic reform is faster than statistical reform - measuring and explaining inequality in rural China," Policy Research Working Paper Series 1902, The World Bank.
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