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Markets, Human Capital, and Inequality: Evidence from Rural China

  • Dwayne Benjamin
  • Loren Brandt
  • Paul Glewwe
  • Li Guo

Market reforms are generally credited with the rapid growth enjoyed by China's rural sector. This growth has not been without some cost, however, as inequality has also increased. Estimates suggest that the Gini rose from less than 0.20 to over 0.40 during this period. In this paper we go behind these numbers to explore the nature and causes of this inequality. To begin, we find that a considerable share of rural inequality is driven by local differences in household incomes, as opposed to regional income differences, that have been the focus of the previous literature. We then examine inter-household income differentials at the village level, exploring the links between education, market development, non- agricultural employment, and household income. To address these questions, we draw on a recently collected data set from Northeast China, that was collected by two of the authors in collaboration with Chinese colleagues in Hebei and Liaoning provinces in 1995. For purposes of comparison, we also draw on the Chinese Health and Nutrition Survey. We find that indeed, increasing rates of return to education and unevenly developed non-agricultural business opportunities contribute to the high levels of inequality in the countryside. Of most interest, however, is the implication that simultaneous improvements in educational attainment and off-farm market-development would allow more households to share in the rapid growth in rural China.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number benjamin-00-01.

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Length: 50 pages
Date of creation: 11 Mar 2000
Date of revision:
Handle: RePEc:tor:tecipa:benjamin-00-01
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  1. Lin, Justin Yifu, 1992. "Rural Reforms and Agricultural Growth in China," American Economic Review, American Economic Association, vol. 82(1), pages 34-51, March.
  2. Orazem, Peter F. & Vodopivec, Milan, 1994. "Winners and losers in transition : returns to education, experience, and gender in Slovenia," Policy Research Working Paper Series 1342, The World Bank.
  3. Hare, Denise, 1994. "Rural nonagricultural activities and their impact on the distribution of income: Evidence from farm households in Southern China," China Economic Review, Elsevier, vol. 5(1), pages 59-82.
  4. George Psacharopoulos, 1985. "Returns to Education: A Further International Update and Implications," Journal of Human Resources, University of Wisconsin Press, vol. 20(4), pages 583-604.
  5. Shorrocks, Anthony F, 1983. "The Impact of Income Components on the Distribution of Family Incomes," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 311-26, May.
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  7. Yang, Dennis T. & An, Mark Yuying, 1997. "Human Capital, Entrereneurship, and Farm Household Earnings," Working Papers 97-03, Duke University, Department of Economics.
  8. Yaohui Zhao, 1999. "Leaving the Countryside: Rural-to-Urban Migration Decisions in China," American Economic Review, American Economic Association, vol. 89(2), pages 281-286, May.
  9. Deaton, A. & Paxson, C., 1993. "Intertemporal Choice and Inequality," Papers 168, Princeton, Woodrow Wilson School - Development Studies.
  10. Shorrocks, A F, 1982. "Inequality Decomposition by Factor Components," Econometrica, Econometric Society, vol. 50(1), pages 193-211, January.
  11. Sicular, Terry, 1988. "Plan and Market in China's Agricultural Commerce," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 283-307, April.
  12. Knight, John & Song, Lina, 1993. "The Spatial Contribution to Income Inequality in Rural China," Cambridge Journal of Economics, Oxford University Press, vol. 17(2), pages 195-213, June.
  13. Benjamin, Dwayne & Brandt, Loren, 1997. "Land, Factor Markets, and Inequality in Rural China: Historical Evidence," Explorations in Economic History, Elsevier, vol. 34(4), pages 460-494, October.
  14. Gregory, R. G. & Meng, Xin, 1995. "Wage Determination and Occupational Attainment in the Rural Industrial Sector of China," Journal of Comparative Economics, Elsevier, vol. 21(3), pages 353-374, December.
  15. Jonathan Morduch & Terry Sicular, 1998. "Politics, Growth and Inequality in Rural China: Does It Pay To Join the Party?," Harvard Institute of Economic Research Working Papers 1832, Harvard - Institute of Economic Research.
  16. Rozelle Scott, 1994. "Rural Industrialization and Increasing Inequality: Emerging Patterns in China's Reforming Economy," Journal of Comparative Economics, Elsevier, vol. 19(3), pages 362-391, December.
  17. Yang, Dennis, 1995. "Education and Off-Farm Work," Working Papers 95-09, Duke University, Department of Economics.
  18. Loren Brandt & Dwayne Benjamin, 1999. "Markets and Inequality in Rural China: Parallels with the Past," American Economic Review, American Economic Association, vol. 89(2), pages 292-295, May.
  19. Knight, J. & Shi, L., 1996. "Cumulative Causation and Inequality Among Villages in China," Economics Series Working Papers 99186, University of Oxford, Department of Economics.
  20. Kai-yuen, Tsui, 1998. "Factor Decomposition of Chinese Rural Income Inequality: New Methodology, Empirical Findings, and Policy Implications," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 502-528, September.
  21. Dennis Tao Yang, 1999. "Urban-Biased Policies and Rising Income Inequality in China," American Economic Review, American Economic Association, vol. 89(2), pages 306-310, May.
  22. Matthew A. Turner & Loren Brandt & Scott Rozelle, 1999. "Property Rights Formation and the Organization of Exchange and Production in Rural China," William Davidson Institute Working Papers Series 250, William Davidson Institute at the University of Michigan.
  23. Albert Park & Scott Rozelle, 1998. "Reforming state-market relations in rural China," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 6(2), pages 461-480, November.
  24. Cheng, Yuk-shing, 1996. "A decomposition analysis of income inequality of Chinese rural households," China Economic Review, Elsevier, vol. 7(2), pages 155-167.
  25. Rosenzweig, Mark R, 1995. "Why Are There Returns to Schooling?," American Economic Review, American Economic Association, vol. 85(2), pages 153-58, May.
  26. Chen, Shaohua & Ravallion, Martin, 1996. "Data in transition: Assessing rural living standards in Southern China," China Economic Review, Elsevier, vol. 7(1), pages 23-56.
  27. Li, Tianyou & Zhang, Junsen, 1998. "Returns to education under collective and household farming in China," Journal of Development Economics, Elsevier, vol. 56(2), pages 307-335, August.
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