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Economic Openness And Income Inequality: Chinese Provincial Evidence In The 1990s

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Listed:
  • YING WU

    (Department of Economics and Finance, Franklin P. Perdue School of Business, Salisbury University, Salisbury, MD 21801, USA)

  • HONG YAO

    (Department of Economics and Finance, Franklin P. Perdue School of Business, Salisbury University, Salisbury, MD 21801, USA)

Abstract

China in the 1990s was a large labor-abundant country at its early phase of global integration. This paper develops a framework that applies a Gini-coefficient–related measure of income inequality to the Heckscher–Ohlin model and analyzes the effects on income inequality of economic openness to foreign trade and capital. Our findings from generalized least squares regression of Chinese provincial data suggest that increased openness tends to lower income inequality in China of the 1990s. Ignoring provincial differentials, China's income inequality decreases as the trade-to-GDP ratio and the interaction between FDI and fiscal deficit increase respectively, though income inequality increases with the deficit-to-GDP ratio and the interaction between trade and financial deepening. With respect to the province-specific effect, however, trade openness and FDI tend to increase income inequality when they are examined jointly with the interaction of financial deepening and government budget balance.

Suggested Citation

  • Ying Wu & Hong Yao, 2012. "Economic Openness And Income Inequality: Chinese Provincial Evidence In The 1990s," China Economic Policy Review (CEPR), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 1-21.
    • Handle: RePEc:wsi:ceprxx:v:01:y:2012:i:02:n:s1793969012500100
    DOI: 10.1142/S1793969012500100
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    References listed on IDEAS

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    1. Robert C. Feenstra & Gene M. Grossman & Douglas A. Irwin (ed.), 1996. "The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061864, December.
    2. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-245, May.
    3. Mr. Chris Papageorgiou & Mr. Subir Lall & Ms. Florence Jaumotte, 2008. "Rising Income Inequality: Technology, or Trade and Financial Globalization?," IMF Working Papers 2008/185, International Monetary Fund.
    4. James Laurenceson & Joseph C.H. Chai, 2003. "Financial Reform and Economic Development in China," Books, Edward Elgar Publishing, number 2714.
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    More about this item

    Keywords

    Income inequality; Heckscher–Ohlin model; economic openness; Chinese provinces; F16; O16; P45;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P45 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - International Linkages

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