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Income Inequality During China's Economic Transition

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  • Dwayne Benjamin
  • Loren Brandt
  • John Giles
  • Sangui Wang

Abstract

This paper provides an overview of the evolution of income inequality in China from 1987 to 2002, employing three series of data sets. Our focus is on both urban and rural inequality, as well as the urban-rural gap, with the objective of summarizing several “first-order” empirical patterns concerning the trajectory of inequality through the reform period. We document significant increases of inequality within China’s urban and rural populations. In rural areas, increased inequality is primarily related to the dis-equalizing role of non-agricultural self-employment income and slow growth in agricultural income from the mid-1990s onward. Poverty persists, and tied in part to slow growth in agricultural commodity prices. In urban areas, the declining role of subsidies and entitlements, the increase in wage inequality and the layoffs during restructuring, have fueled the growth in inequality within urban areas. Poverty levels, however, are very low. We find that spatial (regional) dimensions of inequality are significant, but are much less important than commonly believed for both the urban and rural populations, and for differences between urban and rural areas. Accounting for urban-rural reclassification, which otherwise exaggerates the rising urban-rural gap, we find a relatively stable ratio of urban to rural incomes. This hides some geographical variation, however: The urban-rural gap is increasing more rapidly in interior provinces, where SOE’s had a more dominant role in economic activity in urban areas, than in coastal provinces where the non-state sector was more important earlier in the reform period.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-238.

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Length: 54 pages
Date of creation: 01 Jul 2005
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-238

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Related research

Keywords: China; Income Distribution; Poverty; Inequality; welfare; transition; development;

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References

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  1. Dwayne Benjamin & Loren Brandt & Paul Glewwe & Li Guo, 2000. "Markets, Human Capital, and Inequality: Evidence from Rural China," William Davidson Institute Working Papers Series 298, William Davidson Institute at the University of Michigan.
  2. Xin Meng, 2004. "Economic Restructuring and Income Inequality in Urban China," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 50(3), pages 357-379, 09.
  3. Ravallion, Martin & Chen, Shaohua, 2007. "China's (uneven) progress against poverty," Journal of Development Economics, Elsevier, vol. 82(1), pages 1-42, January.
  4. Loren Brandt & Dwayne Benjamin, 1999. "Markets and Inequality in Rural China: Parallels with the Past," American Economic Review, American Economic Association, vol. 89(2), pages 292-295, May.
  5. Dwayne Benjamin & Loren Brandt & John Giles, 2004. "The Evolution of Income Inequality in Rural China," William Davidson Institute Working Papers Series 2004-654, William Davidson Institute at the University of Michigan.
  6. Keith Griffin & Azizur Rahman Khan & Carl Riskin, 1999. "Income Distribution in Urban China during the Period of Economic Reform and Globalization," American Economic Review, American Economic Association, vol. 89(2), pages 296-300, May.
  7. Shorrocks, Anthony F, 1983. "The Impact of Income Components on the Distribution of Family Incomes," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 311-26, May.
  8. "Rawski, Thomas G.", 1982. "The Simple Arithmetic of Chinese Income Distribution," Economic Review, Hitotsubashi University, vol. 33(1), pages 12-26, January.
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