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Regional Inequality in China allowing for Spatial Cost-of-Living Differences: Evidence from a Hedonic Analysis of Apartment Prices

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Studies of inequality in China typically ignore cost-of-living differences between areas. Under the Balassa-Samuelson effect, non-tradeables cost more in richer areas, so nominal inequality exceeds real inequality. This especially matters in China, where spatial cost-of-living differences should have increased with recent development of urban housing markets. We use new data on apartment prices in 104 major cities in China to develop housing-related spatial deflators. The level of spatial inequality in 2016 is overstated 27 percent if cost-of-living differences are ignored. A hedonic analysis of 41,000 individual apartment sales shows most price variation is between areas, rather than from features of individual apartments. The dominant trend in the reform era is for regional inequality in China to decline, contrary to common perceptions. In nominal terms, the Theil Index for inter-provincial inequality in 2016 is just 46 percent of its 1978 level, and in real terms the fall in inequality would be even greater.

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  • Chao Li & John Gibson, 2018. "Regional Inequality in China allowing for Spatial Cost-of-Living Differences: Evidence from a Hedonic Analysis of Apartment Prices," Working Papers in Economics 18/12, University of Waikato.
  • Handle: RePEc:wai:econwp:18/12
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    Keywords

    China; housing; population; regional inequality; spatial deflators;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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