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Household income dynamics in rural China

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Author Info
Jalan, Jyotsna
Ravallion, Martin

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Abstract

Theoretical work has shown that nonlinear dynamics in household incomes can yield poverty traps and distribution-dependent growth. If this is true, the potential implications for policy are dramatic: effective social protection from transient poverty would be an investment with lasting benefits, and pro-poor redistribution would promote aggregate economic growth. The authors test for nonlinearity in the dynamics of household incomes and expenditures using panel data for 6,000 households over six years in rural southwest China. While they find evidence of nonlinearity in the income and expenditure dynamics, there is no sign of a dynamic poverty trap. The authors argue that existing private and social arrangements in this setting protect vulnerable households from the risk of destitution. However, their findings imply that the speed of recovery from an income shock is appreciably slower for the poor than for others. They also find that current inequality reducesfuture growth in mean incomes, though the"growth cost"of inequality appears to be small. The maximum contribution of inequality is estimated to be 4-7 percent of mean income and 2 percent of mean consumption.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2706.

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Date of creation: 30 Nov 2001
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Handle: RePEc:wbk:wbrwps:2706

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Related research
Keywords: Economic Theory&Research; Labor Policies; Health Economics&Finance; Environmental Economics&Policies; Payment Systems&Infrastructure; Environmental Economics&Policies; Inequality; Economic Theory&Research; Health Economics&Finance; Rural Poverty Reduction;

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References listed on IDEAS
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.:
  1. Day, R H, 1992. "Complex Economic Dynamics: Obvious in History, Generic in Theory, Elusive in Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S9-23, Suppl. De. [Downloadable!] (restricted)
  2. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, vol. 40(1), pages 1-24, February. [Downloadable!] (restricted)
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  5. Chaudhuri, Shubham & Ravallion, Martin, 1994. "How well do static indicators identify the chronically poor?," Journal of Public Economics, Elsevier, vol. 53(3), pages 367-394, March. [Downloadable!] (restricted)
  6. Dasgupta, Partha & Ray, Debraj, 1986. "Inequality as a Determinant of Malnutrition and Unemployment: Theory," Economic Journal, Royal Economic Society, vol. 96(384), pages 1011-34, December. [Downloadable!] (restricted)
  7. Bénabou, Roland, 1996. "Inequality and Growth," CEPR Discussion Papers 1450, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. 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. [Downloadable!] (restricted)
  9. Martin Ravallion, 1997. "Famines and Economics," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1205-1242, September. [Downloadable!] (restricted)
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  10. Stiglitz, Joseph E, 1976. "The Efficiency Wage Hypothesis, Surplus Labour, and the Distribution of Income in L.D.C.s," Oxford Economic Papers, Oxford University Press, vol. 28(2), pages 185-207, July. [Downloadable!] (restricted)
  11. Abhijit V. Banerjee & Esther Duflo, 2000. "Inequality and Growth: What Can the Data Say?," NBER Working Papers 7793, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Jalan, Jyotsna & Ravallion, Martin, 1999. "Are the poor less well insured? Evidence on vulnerability to income risk in rural China," Journal of Development Economics, Elsevier, vol. 58(1), pages 61-81, February. [Downloadable!] (restricted)
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  13. Philippe Aghion & Eve Caroli & Cecilia Garcia-Penalosa, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December. [Downloadable!] (restricted)
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  14. Ravallion, Martin, 1998. "Does aggregation hide the harmful effects of inequality on growth?," Economics Letters, Elsevier, vol. 61(1), pages 73-77, October. [Downloadable!] (restricted)
  15. Varian, Hal R, 1979. "Catastrophe Theory and the Business Cycle," Economic Inquiry, Oxford University Press, vol. 17(1), pages 14-28, January.
  16. Banerjee, Abhijit V & Newman, Andrew F, 1994. "Poverty, Incentives, and Development," American Economic Review, American Economic Association, vol. 84(2), pages 211-15, May. [Downloadable!] (restricted)
  17. Jalan, Jyotsna & Ravallion, Martin, 2001. "Behavioral responses to risk in rural China," Journal of Development Economics, Elsevier, vol. 66(1), pages 23-49, October. [Downloadable!] (restricted)
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  18. Jalan, Jyotsna & Ravallion, Martin, 1998. "Transient Poverty in Postreform Rural China," Journal of Comparative Economics, Elsevier, vol. 26(2), pages 338-357, June. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Stefan Dercon, 2004. "Growth and Shocks: evidence from rural Ethiopia," Development and Comp Systems 0409036, EconWPA. [Downloadable!]
    Other versions:
  2. Antman, Francisca & McKenzie, David J., 2005. "Poverty traps and nonlinear income dynamics with measurement error and individual heterogeneity," Policy Research Working Paper Series 3764, The World Bank. [Downloadable!]
    Other versions:
  3. Md. Shafiul Azam & Katsushi Imai, 2009. "Vulnerability and Poverty in Bangladesh," The School of Economics Discussion Paper Series 0905, Economics, The University of Manchester. [Downloadable!]
    Other versions:
  4. Alberto, Gabriele & Schettino, Francesco, 2006. "Child Mortality In China And Vietnam In A Comparative Perspective," MPRA Paper 3987, University Library of Munich, Germany, revised Dec 2006. [Downloadable!]
  5. Ming Lu & Jianzhi Zhao, 2009. "The Contribution of Social Networks to Income Inequality in Rural China: A Regression-Based Decomposition and Cross-Regional Comparison," Global COE Hi-Stat Discussion Paper Series gd08-019, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  6. Rodriguez-Meza, Jorge & Gonzalez-Vega, Claudio, 2004. "Household Income Dynamics And Poverty Traps In Rural El Salvador," 2004 Annual meeting, August 1-4, Denver, CO 20352, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  7. Francesco Schettino & Alberto Gabriele, 2008. "Child malnutrition and mortality in China and Vietnam in a comparative perspective," Economic Change and Restructuring, Springer, vol. 41(1), pages 29-59, March. [Downloadable!] (restricted)
  8. Naschold, Felix, 2005. "Identifying Asset Poverty Thresholds – New methods with an application to Pakistan and Ethiopia," 2005 Annual meeting, July 24-27, Providence, RI 19115, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  9. Pandey, Manoj K., 2009. "On ageing, health and poverty in rural India," MPRA Paper 15926, University Library of Munich, Germany. [Downloadable!]
  10. Wodon, Quentin & Zaman, Hassan, 2008. "Rising food prices in Sub-Saharan Africa : poverty impact and policy responses," Policy Research Working Paper Series 4738, The World Bank. [Downloadable!]
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