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Explaining the Changes of Income Distribution in China

  • Lixin Colin Xu

    (Development Research Group, the World Bank)

  • Heng-fu Zou

    (Guanghua School of Management, Peking University
    Institute for Advanced Study, Wuhan University
    Development Research Group, the World Bank)

China has experienced one of the most remarkable increase in inequality over the last decade: the Gini coefficient increasing from 25.7 in 1984 to 37.8 in 1992. Using the recent developments in the theory of income distribution (Benerjee and Newman, 1993; Galor and Zeira, 1993) and a new panel data set about Chinese provincial-urban-level income inequality, this paper finds that inequality increased with the reduction of the share of state-owned enterprises in GDP, high inflation, growth, and (less significantly) the increasing exposure to foreign trade. We also find some evidence for the Director¡¯s Law: income redistribution tends to shift resources from the rich and the poor to the middle class. We do not find schooling and urbanization to be a significant explanatory factor.

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Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 473.

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Length: 41 pages
Date of creation: 2000
Date of revision:
Publication status: Published in China Economic Review, Volume 11, Issue 2, December 2000, Pages 149-170
Handle: RePEc:cuf:wpaper:473
Contact details of provider: Web page: http://cema.cufe.edu.cn/

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  1. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
  2. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
  3. Roland Benabou, 1996. "Inequality and Growth," NBER Working Papers 5658, National Bureau of Economic Research, Inc.
  4. Caselli, G & Ventura, J, 1996. "A Representative Consumer Theory of Distribution," Papers 534, Harvard - Institute for International Development.
  5. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 755-76, October.
  6. Hongyi Li & Danyang Xie & Heng-Fu Zou, 2000. "Dynamics of income distribution," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 937-961, November.
  7. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  8. Hongyi Li & Heng-fu Zou, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," CEMA Working Papers 74, China Economics and Management Academy, Central University of Finance and Economics.
  9. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  10. Lyons, Thomas P, 1991. "Interprovincial Disparities in China: Output and Consumption, 1952-1987," Economic Development and Cultural Change, University of Chicago Press, vol. 39(3), pages 471-506, April.
  11. Stigler, George J, 1970. "Director's Law of Public Income Redistribution," Journal of Law and Economics, University of Chicago Press, vol. 13(1), pages 1-10, April.
  12. Atkinson, A-B, 1996. "Bringing Income Distribution in from the Cold," Economics Papers 117, Economics Group, Nuffield College, University of Oxford.
  13. Li, Hongyi & Squire, Lyn & Zou, Heng-fu, 1998. "Explaining International and Intertemporal Variations in Income Inequality," Economic Journal, Royal Economic Society, vol. 108(446), pages 26-43, January.
  14. Edwards, Sebastian, 1997. "Trade Policy, Growth, and Income Distribution," American Economic Review, American Economic Association, vol. 87(2), pages 205-10, May.
  15. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May.
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