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Can Growth Compensate Inequality and Risk?---a welfare analysis for Chinese households


  • Cao, Heping
  • Ligon, Ethan
  • Meng, Xiangyi


It has been widely observed that China's break-neck growth has not been equally shared between rural and urban areas, with urban households' enjoying a much larger proportion. To further test whether regional inequality exists within urban areas, we measure urban households vulnerability in a risky environment and decompose this measure to quantify China aggregate risks, province-level risks and idiosyncratic risks faced by households situated in 31 provinces. Besides, under this framework of analysis, we are able to make welfare comparisons between growth, inequality and different risks. We find that inequality has very big negative effect on households' welfare, while growth is able to compensate nearly half of it; households seem to be able to smooth consumption against risk in both province and individual level, but unable to do so against China shocks, which affect all the households simultaneously.

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  • Cao, Heping & Ligon, Ethan & Meng, Xiangyi, 2006. "Can Growth Compensate Inequality and Risk?---a welfare analysis for Chinese households," 2006 Annual meeting, July 23-26, Long Beach, CA 21458, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea06:21458

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    References listed on IDEAS

    1. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    2. Kanbur, Ravi & Zhang, Xiaobo, 2001. "Fifty Years Of Regional Inequality In China: A Journey Through Revolution, Reform And Openness," Working Papers 7236, Cornell University, Department of Applied Economics and Management.
    3. Ethan Ligon & Laura Schechter, 2003. "Measuring Vulnerability," Economic Journal, Royal Economic Society, vol. 113(486), pages 95-102, March.
    4. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    5. Ravallion, Martin & Chen, Shaohua, 2007. "China's (uneven) progress against poverty," Journal of Development Economics, Elsevier, vol. 82(1), pages 1-42, January.
    6. Jones, Derek C. & Li, Cheng & Owen, Ann L., 2003. "Growth and regional inequality in China during the reform era," China Economic Review, Elsevier, vol. 14(2), pages 186-200.
    7. Ethan Ligon, 2007. "Risk and the Evolution of Inequality in China in an Era of Globalization," NBER Chapters,in: Globalization and Poverty, pages 599-628 National Bureau of Economic Research, Inc.
    8. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    9. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-187, June.
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