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Did higher inequality impede growth in rural China ?

  • Benjamin, Dwayne
  • Brandt, Loren
  • Giles, John

This paper estimates the relationship between initial village inequality and subsequent household income growth for a large sample of households in rural China. Using a rich longitudinal survey spanning the years 1987-2002, and controlling for an array of household and village characteristics, the paper finds that households located in higher inequality villages experienced significantly lower income growth through the 1990s. However, local inequality’s predictive power and effects are significantly diminished by the end of the sample. The paper exploits several advantages of the household-level data to explore hypotheses that shed light on the channels by which inequality affects growth. Biases due to aggregation and heterogeneity of returns to own-resources, previously suggested as candidate explanations for the relationship, are both ruled out. Instead, the evidence points to unobserved village institutions at the time of economic reforms that were associated with household access to higher income activities as the source of the link between inequality and growth. The empirical analysis addresses a number of pertinent econometric issues including measurement error and attrition, but underscores others that are likely to be intractable for all investigations of the inequality-growth relationship.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5483.

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Date of creation: 01 Nov 2010
Date of revision:
Handle: RePEc:wbk:wbrwps:5483
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  1. Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," GE, Growth, Math methods 0410005, EconWPA.
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  8. Khwaja, Asim Ijaz, 2009. "Can good projects succeed in bad communities?," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 899-916, August.
  9. repec:oup:restud:v:60:y:1993:i:1:p:35-52 is not listed on IDEAS
  10. Mark W. Frank, 2009. "Inequality And Growth In The United States: Evidence From A New State-Level Panel Of Income Inequality Measures," Economic Inquiry, Western Economic Association International, vol. 47(1), pages 55-68, 01.
  11. Shylashri Shankar & Raghav Gaiha & Raghbendra Jha, 2010. "Information and Corruption: The National Rural Employment Guarantee Scheme in India," ASARC Working Papers 2010-02, The Australian National University, Australia South Asia Research Centre.
  12. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
  13. Dayton-Johnson, Jeff, 2000. "Determinants of collective action on the local commons: a model with evidence from Mexico," Journal of Development Economics, Elsevier, vol. 62(1), pages 181-208, June.
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  15. Aghion, Philippe & Caroli, Eve & García-Peñalosa, Cecilia, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Scholarly Articles 12502063, Harvard University Department of Economics.
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  19. Ravallion, Martin, 1998. "Does aggregation hide the harmful effects of inequality on growth?," Economics Letters, Elsevier, vol. 61(1), pages 73-77, October.
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  21. Pranab Bardhan & Sandip Mitra & Dilip Mookherjee & Abhirup Sarkar, 2008. "POLITICAL PARTICIPATION, CLIENTELISM AND TARGETING OF LOCAL GOVERNMENT PROGRAMS: Analysis of Survey Results from Rural West Bengal, India," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-171, Boston University - Department of Economics.
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  24. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, vol. 113(487), pages 326-344, 04.
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