Regional Income Inequality in Rural China, 1985–2002: Trends, Causes and Policy Implications

Abstract

It is widely recognized that regional inequality in China has been on the rise since economic reforms were initiated in the late 1970s (Kanbur and Zhang 2005; Wan 2005). In addition to its repercussions on social and political stability, such a rise has hampered poverty alleviation (Ravallion and Chen 2004; Zhang and Wan 2006) and is found to be detrimental to long-run economic growth (Wan, Lu and Chen 2006). Many Chinese scholars also consider high inequality as a major contributor to the sluggish domestic demand in China. It is thus not surprising to witness a broad and growing interest in China’s regional inequality. Earlier studies largely focused on the measurement of regional inequality. Subsequent efforts were devoted to break down total inequality into various components, either by population subgroups (Tsui 1991) or by factor components (Wan 2001). Recently, the technique of regression-based decomposition has gained popularity (Fields and Yoo 2000; Morduch and Sicular 2002; Wan 2002) and has been applied to China (Morduch and Sicular 2002; Wan 2004; Wan and Zhou 2005).