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Two Sides of the Same Coin? Rebalancing and Inclusive Growth in China

Author

Listed:
  • Il Houng Lee
  • Murtaza H Syed
  • Xin Wang

Abstract

This paper uses the Shapley Value decomposition technique to assess the factors behind the rise of inequality in China. It finds that, in many ways, inequality may have been an inevitable by-product of China’s investment and export-led growth model. Between Chinese households, we find that the most important factors explaining income inequality are location, education, access to health insurance, and labor market variables, including the sector of employment and enterprise size. Across China’s provinces, divergences in per capita incomes are driven by the relative level of capital-intensity, public spending, financial access, privatization, and urbanization. In addition, excess liquidity may have exacerbated inequality in the last decade, by driving up property prices and the wealth gap. Based on these results, policies that could help broaden the benefits of growth in China include maintaining prudent monetary and credit policies, a more progressive fiscal tax and expenditure system, higher public spending on health and education, deregulation and reforms to increase competition, measures to raise labor incomes and assist vulnerable workers, and better access to finance for both households and SMEs, including in rural areas. Not surprisingly, given the argued nexus between China’s growth strategy and inequality, many of these reforms are the same ones that would help rebalance its economy toward consumption and household incomes.

Suggested Citation

  • Il Houng Lee & Murtaza H Syed & Xin Wang, 2013. "Two Sides of the Same Coin? Rebalancing and Inclusive Growth in China," IMF Working Papers 13/185, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:13/185
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    References listed on IDEAS

    as
    1. Guanghua Wan & Ming Lu & Zhao Chen, 2007. "Globalization And Regional Income Inequality: Empirical Evidence From Within China," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(1), pages 35-59, March.
    2. Guanghua Wan & Zhangyue Zhou, 2005. "Income Inequality in Rural China: Regression-based Decomposition Using Household Data," Review of Development Economics, Wiley Blackwell, vol. 9(1), pages 107-120, February.
    3. Jun Zhang, 2008. "Estimation of China's provincial capital stock (1952-2004) with applications," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 6(2), pages 177-196.
    4. Fan, Shenggen & Kanbur, Ravi & Zhang, Xiaobo, 2008. "Regional Inequality In China: An Overview," Working Papers 51157, Cornell University, Department of Applied Economics and Management.
    5. Francesca Bastagli & David Coady & Sanjeev Gupta, 2012. "Income Inequality and Fiscal Policy (2nd Edition)," IMF Staff Discussion Notes 12/08R, International Monetary Fund.
    6. Chris Papageorgiou & Subir Lall & Florence Jaumotte, 2008. "Rising Income Inequality; Technology, or Trade and Financial Globalization?," IMF Working Papers 08/185, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Inégalités et croissance en Chine : les deux faces d’une même pièce ?
      by Martin Anota in D'un champ l'autre on 2015-04-03 04:03:35

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    Cited by:

    1. Serhan Cevik & Carolina Correa-Caro, 2015. "Growing (Un)equal; Fiscal Policy and Income Inequality in China and BRIC+," IMF Working Papers 15/68, International Monetary Fund.

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