Inequality Trends and Determinants in Sri Lanka 1980-2002: A Shapley Approach to Decomposition

Sri Lanka liberalised its economy in 1977, paving the way for more rapid economic growth and higher rates of job creation. But tensions over distributional issues still plague the body politic. This paper investigates the evolution of Sri Lanka's income distribution in the period 1980-2002 and uses the Shapley value decomposition methodology to determine underlying causes. The study finds that while average incomes rose across strata, the rich experienced more rapid income growth leading to greater inequality. Inequality change was driven by differential access to infrastructure, education, and occupation status. Demographic factors including ethnicity, and spatial factors, contributed very little. The study recommends policies that ensure more equitable access to income earning assets such as education and infrastructure services and make sure that increases in inequality do not take place along sectoral, regional and ethnic fault lines.income inequality; Sri Lanka; Shapley value decomposition

Impact of Structural Change in Education, Industry and Infrastructure on Income Distribution in Sri Lanka

Income inequality increased in Sri Lanka following trade liberalization in 1977. This study applies a semi-parametric method to investigate whether structural changes in education, industry and infrastructure access underlay the change in the distribution. The study finds that while the concentration of people shifted towards higher income ranges at every stage in the distribution between 1985 and 2002, changes in access to infrastructure triggered much of the shift. Higher levels of educational attainment also had an impact. But the middle classes appear to have benefited disproportionately more from the provision of education and infrastructure services than did the poor. The analysis recommends that such services are targeted more effectively towards those in the poorest income deciles to enable them to move out of poverty to higher income ranges.Income inequality; Sri Lanka; education; infrastructure; kernel density decomposition

The Rural-Urban Divide in China: Income but Not Happiness?

The paper presents subjective well-being functions for urban and rural China, based on a national household survey for 2002. Whereas the vast income disparity between urban and rural households is confirmed, it is found that, remarkably, rural households report higher subjective well-being than do their richer urban counterparts. A decomposition analysis explores the reasons for this reversal. It finds that there are many determinants of happiness other than absolute income, and that the determinants differ in the two sectors. An explanation for the puzzle is advanced in terms of relative concepts, income inequalities, orbits of comparison, and degrees of insecurity. Positive and normative implications are discussed.

The quality of society and happiness: fairness, trust, and community in China

Adam Smith argued that ‘moral sentiments’ – the norms, customs and conventions that are developed in society - provide a benefit to society, improving both economic efficiency and well-being. We take our cue from this insight. Three important moral sentiments are a perception of fairness, a willingness to trust people, and a sense of community We analyse representative national socioeconomic surveys of the China Household Income Project (CHIP), conducted in 2002 and 2013. It contains information that is used to create a happiness score, a fairness score, a trust score, and a community score for each respondent. Three main hypotheses are tested: that higher reported fairness, higher reported trust, and greater sense of community each raises happiness. In the first case there is strong evidence of a positive association in both rural and urban China. Moreover, we find that a higher sense of fairness ameliorates the adverse effect of reference group income on happiness, especially for the poor. Higher reported trust scores are also strongly associated with greater happiness in both rural and urban China. Average trust scores in the locality are positively associated with happiness, suggesting that a high level of trustworthiness in the community is also valued. Three measures of village sense of community are each associated with greater happiness. Attempts are made to ascertain whether the associations are causal; use of internal instruments provides some support. The possible determinants of reported fairness, trust, and community are investigated, some of which have policy implications. The evidence of the paper is generally consistent with the broader argument that an informal social contract constrains antisocial behaviour and improves wellbeing in ways little studied by economists

Conditionality and adjustment in South East Asia and Latin America

In this chapter, the authors provide a detailed look at the adjustment experiences of two important regions, examining the role which conditionality played in those experiences. There are particular reasons for choosing these regions. There has been remarkably little discussion of adjustment in South-East Asia eventhough it is regarded as possessing very flexible economies. With the exception of Philippines, theirs was a largely silent adjustment and a highly successful too. Latin America is different. Until the early 1980s, many Latin American countries had inflexible policies and economies, resistant to the new doctrines of adjustment (although Chile was an early exception). Over the last decade and a half, however, there has been a major reversal in attitudes to economic management, as well as some recovery in economic fortunes

Aspirations, Adaptation and Subjective Well-Being of Rural-Urban Migrants in China.

This research is among the first to link the literatures on migration and on subjective well-being in developing countries. It poses the question: why do rural-urban migrant households settled in urban China have an average happiness score lower than that of rural households? It examines the hypothesis that migrants have false expectations because they cannot foresee how their aspirations will adapt to their new situation, and draws on research on both psychology and sociology. Estimated happiness functions and decomposition analyses, based on a 2002 national household survey, suggest that their high aspirations in relation to achievement, influenced by their new reference groups, make for unhappiness. The evidence is consistent with the hypothesis

Income, Aspirations and the Hedonic Treadmill in a Poor Society.

A specially designed household survey for rural China is used to analyse the determinants of aspirations for income, proxied by reported minimum income need, and the determinants of subjective well-being, both satisfaction with life and satisfaction with income. It is found that aspiration income is a positive function of actual income and reference income, and that subjective well-being is raised by actual income but lowered by aspiration income. These findings suggests the existence of a partial hedonic treadmill, and can help to explain why subjective well-being in China appears not to have risen despite rapid economic growth

Great Expectations? The Subjective Well-Being of Rural-Urban Migrants in China.

This paper may be the first to link the literatures on migration and on subjective well-being in developing countries. It poses the question: why do rural-urban migrant households settled in urban China have an average happiness score lower than that of rural households? Three basic hypotheses are examined: migrants had false expectations about their future urban conditions, or about their future urban aspirations, or about their future selves. Estimated happiness functions and decomposition analyses, based on a 2002 national household survey, indicate that certain features of migrant conditions make for unhappiness, and that their high aspirations in relation to achievement, influenced by reference groups, also make for unhappiness. It is difficult to form unbiased expectations about life in a new and different world

Great Expectations? The Subjective Well-Being of Rural-Urban Migrants in China.

This paper may be the first to link the literatures on migration and on subjective well-being in developing countries. It poses the question: why do rural-urban migrant households settled in urban China have an average happiness score lower than that of rural households? Three basic hypotheses are examined: migrants had false expectations about their future urban conditions, or about their future urban aspirations, or about their future selves. Estimated happiness functions and decomposition analyses, based on a 2002 national household survey, indicate that certain features of migrant conditions make for unhappiness, and that their high aspirations in relation to achievement, influenced by reference groups, also make for unhappiness. It is difficult to form unbiased expectations about life in a new and different world