The Evolution of Income Inequality in Rural China

We document the evolution of the income distribution in rural China, from 1987 through 1999, with an emphasis on investigating increases in inequality associated with transition and economic development. With a backdrop of perceived improvements in average living standards, we ask whether increases of inequality may have offset, or even threaten welfare gains associated with economic reforms. The centerpiece of the paper is an empirical analysis based on a set of household surveys conducted by the China’s Research Center for Rural Economy (RCRE) in Beijing. These surveys permit us to construct a set of comparable estimates of household income and consumption from a panel of over 100 villages from nine Chinese provinces. We provide a variety of summary statistics, including Gini coefficients, as well as more nonparametric summaries of the income distribution (i.e., Lorenz curves). In addition, we decompose the sources of inequality, exploring the contributions of spatial inequality to overall inequality, and the role of non-agricultural incomes in explaining rising dispersion of incomes. We find that the distribution of income improved by most measures during the early part of the period, as average incomes rose substantially with only a modest increase in inequality. However, the distribution has worsened significantly since 1995, with rising inequality, and falling absolute incomes, especially at the bottom end of the income distribution. We attribute most of the recent decline in welfare to collapsing agricultural incomes, probably brought about by lower farm prices. At the same time, increasing non-farm incomes have widened the gaps between those with and without access to nonagricultural opportunities. Based on explorations with different data sets, our RCRE-based results probably understate the divergence due to non-agricultural income growth and the increase in inequality over time. Our results highlight the need for further evaluation of the role of farming as a source of income in the countryside, and also underline the limitations of a land-based (and essentially grain-based) income support and redistribution mechanisms.http://deepblue.lib.umich.edu/bitstream/2027.42/40040/3/wp654.pd

The Evolution of Income Inequality in Rural China

We document the evolution of the income distribution in rural China, from 1987 through 1999, with an emphasis on investigating increases in inequality associated with transition and economic development. With a backdrop of perceived improvements in average living standards, we ask whether increases of inequality may have offset, or even threaten welfare gains associated with economic reforms. The centerpiece of the paper is an empirical analysis based on a set of household surveys conducted by the China’s Research Center for Rural Economy (RCRE) in Beijing. These surveys permit us to construct a set of comparable estimates of household income and consumption from a panel of over 100 villages from nine Chinese provinces. We provide a variety of summary statistics, including Gini coefficients, as well as more nonparametric summaries of the income distribution (i.e., Lorenz curves). In addition, we decompose the sources of inequality, exploring the contributions of spatial inequality to overall inequality, and the role of non-agricultural incomes in explaining rising dispersion of incomes. We find that the distribution of income improved by most measures during the early part of the period, as average incomes rose substantially with only a modest increase in inequality. However, the distribution has worsened significantly since 1995, with rising inequality, and falling absolute incomes, especially at the bottom end of the income distribution. We attribute most of the recent decline in welfare to collapsing agricultural incomes, probably brought about by lower farm prices. At the same time, increasing non-farm incomes have widened the gaps between those with and without access to nonagricultural opportunities. Based on explorations with different data sets, our RCRE-based results probably understate the divergence due to non-agricultural income growth and the increase in inequality over time. Our results highlight the need for further evaluation of the role of farming as a source of income in the countryside, and also underline the limitations of a land-based (and essentially grain-based) income support and redistribution mechanisms.Rural inequality; China; welfare and transition; poverty; farm incomes

Pro-poor intervention strategies in irrigated agriculture in Asia: poverty in irrigated agriculture: issues and options: China

Irrigated farming / Poverty / Households / Income / Irrigation management / Institutions / Conflict / Legal aspects / Water policy / Water allocation / Price policy / Water rights / Water market / Irrigation programs / Public ownership / Models / Regression analysis / Farm size / Labor / Productivity / China

Dynamic agricultural supply response under economic transformation

China has experienced dramatic economic transformation and is facing the challenge of ensuring steady agricultural growth. This study examines the crop sector by estimating the supply response for major crops in Henan province from 1998 to 2007. We use a Nerlovian adjustment adaptive expectation model. The estimation uses dynamic Generalized Method of Moments (GMM) panel estimation based on pooled data across 108 counties. We estimate acreage and yield response functions and derive the supply response elasticities. This research links supply response to exogenous factors (weather, irrigation, government policy, capital investment, and infrastructure) and endogenous factors (prices). The significant feature of the model specification used in the study is that it addresses the endogeneity problem by capturing different responses to own- and cross-prices. Empirical results illustrate that there is still great potential to increase crop production through improvement of investment priorities and proper government policy. We confirm that farmers respond to price by both reallocating land and more intensively applying non-land inputs to boost yield. Investment in rural infrastructure, human capacity, and technology are highlighted as major drivers for yield increase. Policy incentives such as taxes and subsidies prove to be effective in encouraging grain production.acreage and yield response, dynamic panel model, Generalized Method of Moments (GMM), supply elasticity,

Reducing Inequality And Poverty During Liberalisation In China: Rural And Agricultural Experiences And Policy Options

While liberalisation is designed to help growth and alleviate poverty by removing impediments that stop people and regions from specialising and trading, the process known as Core liberalisation (CL) has three components: it frees markets in goods and services, land, capital, and labour; phases out non-market influences on prices; and clarifies property rights. In the case of China, CL accompanied rapid, robust economic growth and reduction in poverty. However, from the mid-1980s, inequality – among regions, between city and village, and within rural communities – soared, leaving stubborn poverty increasingly concentrated in ‘rural poverty islands’ (RPIs). By 2001, almost 40 per cent of China’s poor – but only about a fifth of the population – lived in these RPIs. This paper analyses evidence of liberalisation in China, factors limiting the gains from CL for poor people and regions, and provides policy recommendations.Inequality, Poverty, Trade Liberalisation, Rural, Agriculture, China.

Income Inequality in Rural China: Regression-based Decomposition Using Household Data

inequality decomposition, regression, income generating function, China

Rising income inequality in China : a race to the top

Income inequality in China has risen rapidly in the past decades across regions, between rural and urban sectors, and within provinces. The dynamics of divergence across these sub-national areas have taken the form of a"race to the top"- meaning that all segments of the population, including the poor with low education in lagging inland rural areas, have experienced gains in average income. The largest gains have been registered by those with higher income and education in leading coastal urban areas. Using the China Economic, Population, Nutrition and Health Survey data of 1989 and 2004, we show that the most important factors explaining overall inequality are differential returns to schooling and sector of employment. A decomposition analysis based on household income determination shows that the increase in returns to education explains two-thirds of income changes in urban areas and one-sixth in rural areas. The widening income gaps are the consequence of higher growth in leading urban and coastal areas and that the skilled population has benefited more from the economic reforms carried out during the last 25 years. The authors argue that rising income inequality can be part of a normal process of development at a certain stage, and that the dynamics of spatial income divergence in the form of"a race to the top"can be desirable to some extent as it unleashes competitive pressure and creates incentives for investment in skills. Continuing to improve market efficiency and investing in people, in particular improving education service in lagging areas to poor people, are important for sustainable growth and equitable distribution in the long run.Rural Poverty Reduction,Inequality,Achieving Shared Growth,Population Policies,

China’s Regional Disparities: Experience and Policy

International Development, International Relations/Trade,

Intergovernmental fiscal relations in China

The choice of the"right"fiscal relationship between central, provincial, and local governments depends on how a government weighs the benefits of decentralized economic development policies against the costs of having less effective central fiscal management. Three strong forces justify more fiscal centralization in China's highly decentralized fiscal system. First, Bouts of inflation and recurrent fiscal deficits can be seen as calling for more central control over the budget. Second, Reform of an economic system relies heavily on the use of tax policy as an allocative instrument to influence economic decisions. Local control of the implementation of the tax system can and probably has compromised some objectives of the central government's tax policy. Gaining tighter control over the revenue system will probably require reducing if not eliminating local government discretion in providing special tax concessions. Third, if the center wants to move ahead with price reform and to encourage enterprise reform, it needs a more centrally controlled revenue sharing or assignment system that reduces the dislocating effects of such reforms. Bahl and Wallich conclude that a reformed system of intergovernmental finance must meet the center's needs for stabilization and the provinces'needs for revenue and equalized spending capacity, supplemented by an improved system of financing local capital expenditures through borrowing, a system of benefit charges and improved planning.Public Sector Economics&Finance,National Governance,Banks&Banking Reform,Municipal Financial Management,Urban Economics