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Preferential policies and income inequality: Evidence from Special Economic Zones and Open Cities in China

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  • Valerio Mendoza, Octasiano M.

Abstract

This paper examines whether cities with preferential policies have higher inequality in household disposable income per capita than cities without preferential policies in urban China. “Preferential policies” refers to the autonomy and deregulation given to Special Economic Zones (SEZs) and Open Cities, allowing them to experiment with market policies and reforms, as the country moves from a state-controlled economy towards a market-oriented economy. While the effect of these policies on economic growth is extensively documented, their relationship with income inequality remains undetermined. Subgroup decompositions of income inequality, using the China Household Income Project's urban datasets of over 6000 households and 20,000 individuals from of up to 70 cities from 12 provinces, were used to identify income inequality gaps between cities with and without preferential policies. The results reveal that while income inequality increased in urban China from 1988 to 2007, the change was lower for cities awarded preferential policies across regions. Furthermore, the decompositions by region indicate that cities receiving preferential policy treatment had higher income growth but a lesser increase in income inequality than cities without preferential policies in each region. Finally, cities receiving preferential policies were able to increase the share of income of the poorest 40% of households while reducing the share of the richest 10%.

Suggested Citation

  • Valerio Mendoza, Octasiano M., 2016. "Preferential policies and income inequality: Evidence from Special Economic Zones and Open Cities in China," China Economic Review, Elsevier, vol. 40(C), pages 228-240.
  • Handle: RePEc:eee:chieco:v:40:y:2016:i:c:p:228-240
    DOI: 10.1016/j.chieco.2016.07.013
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    More about this item

    Keywords

    China; Urban income inequality; Preferential policies; Special Economic Zones; Spatial decomposition;

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • D3 - Microeconomics - - Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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