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The Evolution of Income Inequality in Rural China

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Author Info
Dwayne Benjamin ()
Loren Brandt ()
John Giles ()

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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, probably 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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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number 2004-654.

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Length: 54 pages
Date of creation: 01 Feb 2004
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Handle: RePEc:wdi:papers:2004-654

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

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Find related papers by JEL classification:
P36 - Economic Systems - - Socialist Institutions and Their Transitions - - - Consumer Economics; Health, Education, Welfare, and Poverty
D3 - Microeconomics - - Distribution
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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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. 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. [Downloadable!] (restricted)
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    Other versions:
  6. Benjamin, Dwayne & Brandt, Loren, 1997. "Land, Factor Markets, and Inequality in Rural China: Historical Evidence," Explorations in Economic History, Elsevier, vol. 34(4), pages 460-494, October. [Downloadable!] (restricted)
  7. Hare, Denise, 1994. "Rural nonagricultural activities and their impact on the distribution of income: Evidence from farm households in Southern China," China Economic Review, Elsevier, vol. 5(1), pages 59-82. [Downloadable!] (restricted)
  8. 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)
    Other versions:
  9. 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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  10. Jeff Dayton-Johnson & Pranab Bardhan, 2002. "Inequality And Conservation On The Local Commons: A Theoretical Exercise," Economic Journal, Royal Economic Society, vol. 112(481), pages 577-602, July. [Downloadable!] (restricted)
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  11. Angus Deaton, 2003. "Measuring Poverty in a Growing World (or Measuring Growth in a Poor World)," NBER Working Papers 9822, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Jonathan Morduch & Terry Sicular, 2002. "Rethinking Inequality Decomposition, With Evidence from Rural China," Economic Journal, Royal Economic Society, vol. 112(476), pages 93-106, January. [Downloadable!] (restricted)
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  13. Loren Brandt & Dwayne Benjamin, 2002. "Property Rights, Labour Markets, and Efficiency in a Transition Economy: The Case of Rural China," William Davidson Institute Working Papers Series 518, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  14. 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. [Downloadable!]
  15. Rozelle Scott, 1994. "Rural Industrialization and Increasing Inequality: Emerging Patterns in China's Reforming Economy," Journal of Comparative Economics, Elsevier, vol. 19(3), pages 362-391, December. [Downloadable!] (restricted)
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  17. Kai-yuen, Tsui, 1998. "Trends and Inequalities of Rural Welfare in China: Evidence from Rural Households in Guangdong and Sichuan," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 783-804, December. [Downloadable!] (restricted)
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  19. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, Oxford University Press, vol. 10(3), pages 565-91, September.
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  21. Gustafsson, Bjorn & Shi, Li, 2002. "Income inequality within and across counties in rural China 1988 and 1995," Journal of Development Economics, Elsevier, vol. 69(1), pages 179-204, October. [Downloadable!] (restricted)
  22. Shorrocks, A F, 1982. "Inequality Decomposition by Factor Components," Econometrica, Econometric Society, vol. 50(1), pages 193-211, January. [Downloadable!] (restricted)
Full references

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. 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!]
  2. Niny Khor & John Pencavel, 2006. "Income Mobility of Individuals in China and the United States," IZA Discussion Papers 2003, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Chen, Zhuo & Huffman, Wallace & Rozelle, Scott, 2004. "Migration And Local Off-Farm Working In Rural China," 2004 Annual meeting, August 1-4, Denver, CO 20075, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  4. Shahin Yaqub, 2003. "Relating Severe Poverty and Chronic Poverty," Working Papers wpdea0307, Department of Applied Economics at Universitat Autonoma of Barcelona. [Downloadable!]
  5. Ha, Wei & Yi, Junjian & Zhang, Junsen, 2009. "Internal Migration and Income Inequality in China: Evidence from Village Panel Data," MPRA Paper 16896, University Library of Munich, Germany. [Downloadable!]
  6. Glauben, Thomas & Herzfeld, Thomas & Wang, Xiaobing, 2005. "Labor Market Participation of Chinese Agricultural Households," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24516, European Association of Agricultural Economists. [Downloadable!]
  7. Xiaoyun Liu & Terry Sicular, 2008. "Non-agricultural Employment Determinants and Income Inequality Decomposition," University of Western Ontario, RBC Financial Group Economic Policy Research Institute Working Papers 20086, University of Western Ontario, RBC Financial Group Economic Policy Research Institute. [Downloadable!]
    Other versions:
  8. Sangui Wang & Dwayne Benjamin & Loren Brandt & John Giles & Yingxing Li & Yun Li, 2007. "Inequality and Poverty in China during Reform," Cahiers de recherche PMMA 2007-07, PEP-PMMA. [Downloadable!]
  9. de Brauw, Alan & Giles, John, 2008. "Migrant labor markets and the welfare of rural households in the developing world : evidence from China," Policy Research Working Paper Series 4585, The World Bank. [Downloadable!]
    Other versions:
  10. Qu, Zhaopeng (Frank) & Zhao, Zhong, 2008. "Urban-Rural Consumption Inequality in China from 1988 to 2002: Evidence from Quantile Regression Decomposition," IZA Discussion Papers 3659, Institute for the Study of Labor (IZA). [Downloadable!]
  11. Zhong Zhao, 2007. "Earnings Instability and Earnings Inequality in Urban China: 1989-2006," IZA Discussion Papers 3270, Institute for the Study of Labor (IZA). [Downloadable!]
  12. Chen, Adam Zhuo & Huffman, Wallace E. & Rozelle, Scott, 2003. "Technical Efficiency Of Chinese Grain Production: A Stochastic Production Frontier Approach," 2003 Annual meeting, July 27-30, Montreal, Canada 22116, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  13. James K. Galbraith & Ludmila Krytynskaia & Qifei Wang, 2004. "The Experience of Rising Inequality in Russia and China during the Transition," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 1(1), pages 87-106, June. [Downloadable!]
  14. Jia, Xiangping & Fock, Achim, 2007. "Thirty Years of Agricultural Transition in China (1977-2007) and the "New Rural Campaign"," 106th Seminar, October 25-27, 2007, Montpellier, France 7953, European Association of Agricultural Economists. [Downloadable!]
  15. Jean-Yves Duclos & Abdelkrim Araar & John Giles, 2006. "Chronic and Transient Poverty: Measurement and Estimation, with Evidence from China," IZA Discussion Papers 2078, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  16. Dwayne Benjamin & Loren Brandt & John Giles & Sangui Wang, 2005. "Income Inequality During China's Economic Transition," Working Papers tecipa-238, University of Toronto, Department of Economics. [Downloadable!]
  17. Chang, Min & Sumner, Daniel A., 2004. "Trade Impact On Food Security: Analysis On Farm Households In Rural China," 2004 Annual meeting, August 1-4, Denver, CO 20322, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  18. Sylvie Demurger & Martin Fournier & Shi Li, 2006. "Urban income inequality in China revisited, 1988-2002," Post-Print halshs-00372106_v1, HAL. [Downloadable!]
    Other versions:
  19. Ravallion, Martin, 2005. "Looking Beyond Averages in the Trade and Poverty Debate," Working Papers RP2005/29, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
    Other versions:
  20. Thi Kim Cuong PHAM, 2004. "Wealth distribution, endogenous fiscal policy and growth: status-seeking implications," Working Papers of BETA 2004-11, Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg. [Downloadable!]
  21. Ravallion, Martin & Shaohua Chen, 2004. "China's (uneven) progress against poverty," Policy Research Working Paper Series 3408, The World Bank. [Downloadable!]
    Other versions:
  22. Alan de Brauw & John Giles, 2006. "Migrant Opportunity and the Educational Attainment of Youth in Rural China," IZA Discussion Papers 2326, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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