Changes in regional inequality in rural China: decomposing the Gini index by income sources

Abstract

A new method is proposed to decompose inequality changes as measured by the Gini index 1 into structural e¡ects, real inequality e¡ects and interactive e¡ects. Application of the method to updated Chinese data reveals that structural e¡ects represent the driving force underlying the increasing trend in regional income inequality in rural China. Policy implications are explored. In addition to these contributions, considerable e¡orts are made to construct the income data used in the article. Pitfalls in measuring income inequality in rural China are discussed.

Spatial decomposition of inequality

“…The majority of empirical studies reported in Table 1 do not adjust for spatial price differences, although such differences exist and may substantially change the results for both developing countries such as China (see Wan 2001) and free market economies such as the US (see Ram 1992). Price levels are often correlated with living standards, so adjusting for spatial price differences will tend to lower the between-group term in the spatial decomposition while…”

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

“…On the other hand, education was the second largest contributor and its position more or less matched that of industrialization since 1996. The contribution of industrialization is large but smaller than that suggested by earlier studies of Rozelle (1994) and Wan (2001). Such an inconsistency is most likely due to contamination in early analytical frameworks, where other factors were not controlled for.…”

“…Such an inconsistency is most likely due to contamination in early analytical frameworks, where other factors were not controlled for. Wan (2004) obtained a smaller contribution than Rozelle (1994) and Wan (2001) after controlling for some variables. However, Wan (2004) did not incorporate regional dummy variables in his income function.…”

“…Data for Tibet are not complete. As argued by Wan (2001), such exclusion is not expected to distort the analytical results. All data in value terms are deflated by regional rural consumer price indices (CPIs) as well as the regional price indices compiled by Brandt and Carsten (2004).…”

“…Earlier studies largely focused on the measurement of regional inequality. Subsequent efforts were devoted to breakdown 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).…”