Urbanization and Income Inequality in China: An Empirical Investigation at Provincial Level

Abstract

Trends in inequality in China suggest that there has been a significant increase in inequality in the distribution of income from around 0.30 in 1980 to 0.55 in 2012. Research over the last two decades has focused on identifying the main drivers of the increase in inequality. The main objective of this paper is to examine the relationship between urbanization and income inequality in China using provincial level data over the period 1987-2010. Using a panel of data for 20 provinces collected from the Chinese Statistical Yearbooks for five selected years. The empirical analysis based on OLS, fixed and random effects models, show a robust inverted-U relationship between inequality and urbanization. A threshold rate of urbanization of 0.53 has been identified with the implication that provinces with levels of urbanization higher than the threshold will experience reductions in income inequality. The second objective of the paper investigates the role of urbanization and the rural-urban wage differential on provincial inequality. Based on data from a representative cross-section of six provinces covering the period 1987-2005, we find that well-developed or income rich regions tend to have lower rural-urban inequality and higher migrant inflows and the rural-urban wage gap make significant contributions to income inequality.

The Impacts of Financial Development, Urbanization, and Globalization on Income Inequality: A Regression-based Decomposition Approach

“…When the PRC reaches a 55% urbanization rate, further urbanization is expected to narrow the income gap. Using provincial-level panel data, Wu and Rao (2016) find a negative relationship between inequality and urbanization in the PRC. Those provinces with low levels of urbanization experience rising income inequality, while a reduction in income inequality can be observed for those provinces with high urbanization levels.…”

“…Since the people in the rural areas are usually poorer than their urban counterparts, urbanization can be employed to boost the income of the rural residents so as to reduce the income gap. In fact, many researchers report that urbanization may lead to a reduction in the rural-urban disparity, and even overall income inequality (Kanbur and Zhuang 2013, Wan 2013, Wu and Rao 2016.…”

Does Population Mobility Contribute to Urbanization Convergence? Empirical Evidence from Three Major Urban Agglomerations in China

“…At the beginning, the widening income gap between urban and rural areas indicates that cities and towns are superior to rural areas, and rural populations migrate to cities and towns in order to seek better employment opportunities and higher incomes. However, rural productivity is constantly improving, coupled with the high consumption level of urban regions compared with rural regions, the comparative advantage of choosing urban life is gradually decreasing, which leads to the decline of urbanization growth rate [48]. Meanwhile, the increase of income level has increased the absorption capacity of neighboring regions to populations, thus reducing the urban growth in native cities and benefiting the inter-regional urbanization convergence.…”

“…In addition, economic growth (gdp), industrial structure (ind), income level (income) together with infrastructure construction (road) are considered as potential factors that may have an impact on urbanization convergence [47][48][49]. The conditional convergence model with corresponding explanatory variables are as follows:…”

The Impacts of Financial Development, Urbanization, and Globalization on Income Inequality: A Regression-Based Decomposition Approach

“…Since the people in the rural areas are usually poorer than their urban counterparts, urbanization can be employed to boost the income of the rural residents so as to reduce the income gap. In fact, many researchers report that urbanization may lead to a reduction in the rural-urban disparity, and even overall income inequality (Kanbur and Zhuang 2013, Wan 2013, Wu and Rao 2016. The PRC's international trade rocketed from $20.6 billion in 1978 to $2,378 billion in 2014 (State Statistical Bureau 2015).…”