Guanghua Wan

GLOBALIZATION AND REGIONAL INCOME INEQUALITY: EMPIRICAL EVIDENCE FROM WITHIN CHINA

Chinas recent accession to the WTO is expected to accelerate its integration into the world economy, which aggravates concerns over the impact of globalization on the already rising inter-region income inequality in China. This paper discusses Chinas globalization process and estimates an income generating function, incorporating trade and FDI variables. It then applies the newly developed Shapley value decomposition technique to quantify the contributions of globalization, along with other variables, to regional inequality. It is found that: (a) globalization constitutes a positive and substantial share of regional inequality and the share rises over time; (b) domestic capital, however, emerges as the largest contributor to regional inequality; (c) economic reform characterized by privatization exerts an increasingly significant impact on regional inequality; and (d) the relative contributions of education, location, urbanization and dependency ratio to regional inequality have been declining.

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

A considerable literature exists on the measurement of income inequality in China and its increasing trend. Much less is known about the driving forces of this trend and their quantitative contributions. Conventional decompositions, by factor components or by population subgroups, provide only limited information on the determinants of income inequality. This paper represents an early attempt to apply the regression-based decomposition framework to the study of inequality accounting in rural China, using household-level data. It is found that geography has been the dominant factor but is becoming less important in explaining total inequality. Capital input emerges as a most significant determinant of income inequality. Farming structure is more important than labor and other inputs in contributing to income inequality across households.

Understanding Regional Poverty and Inequality Trends in China: Methodological Issues and Empirical Findings

This paper focuses on methodological and empirical issues in analyzing regional poverty and inequality trends in China. It provides a time profile of Chinas regional inequality, outlines the latest development in inequality decomposition techniques, introduces six papers in this special issue of the Review, and finally offers suggestions for future research.

Urban Poverty in China and its Contributing Factors, 1986-2000

Food price increases and the introduction of radical social welfare and enterprise reforms during the 1990s generated significant changes in the lives of urban households in China. During this period urban poverty increased considerably. This paper uses household level data from 1986 to 2000 to examine what determines whether households fall below the poverty line over this period and investigates how the impact of these determinants has changed through time. We find that large households and households with more nonworking members are more likely to be poor, suggesting that perhaps the change from the old implicit price subsidies, based on household size, to an explicit income subsidy, based on employment, has worsened the position of large families. Further investigation into regional poverty variation indicates that over the 1986–93 period food price increases were also a major contributing factor. Between 1994 and 2000 the worsening of the economic situation of state sector employees contributed to the poverty increase.

Explaining the Poverty Difference between Inland and Coastal China: A Regression-based Decomposition Approach

This paper proposes a decomposition framework for quantifying contributions of the determinants of poverty to spatial differences or temporal changes in poverty. This framework is then applied to address the issue why poverty incidence is higher in inland than in coastal China. The empirical application requires household or individual income observations which, generally speaking, are not available. Thus, a datageneration method developed by Shorrocks and Wan is introduced to construct such observations from grouped income data. It is found that inland China is poorer than coastal China, mainly due to lower efficiency in resource utilization not to less endowment of resources. Also, trade became poverty-reducing in coastal China in the late 1990s but remained poverty-inducing in inland China. Policy implications are briefly discussed.

The public distribution systems of foodgrains and implications for food security: a comparison of the experiences of India and China

The issue of food security has been around for a long time and the right to adequate food and to be free from hunger has been repeatedly affirmed in a number of documents adopted by the United Nations (for example, the Universal Declaration of Human Rights in 1948; International Covenant on Economic, Social and Cultural Rights in 1966; and the Rights of the Child in 1989). Nevertheless, by the early 1990s, there were still more than 800 million people, mostly in developing countries, who did not have enough food to meet basic nutritional needs. This led the Food and Agriculture Organization (FAO) to assemble a World Food Summit in 1996, in which 194 countries took part and during which the Rome Declaration on World Food Security was drawn up. The Summit called on the international community to cut the number of hungry people by half to about 400 million by 2015. However, progress towards achieving the target, as reviewed in the World Food Summit: five years later (June 2002) has remained disappointingly slow (FAO 2002). According to FAO (2004: 6), in 2000–02, the number of under-nourished people worldwide remained as high as 852 million, including 815 million in the developing countries.

China Urban Poverty and its Contributing Factors, 1986-2000

Food price increases and the introduction of radical social welfare and enterprise reforms during the 1990s generated significant changes in the lives of urban households in China. During this period, urban poverty increased considerably. This chapter uses household level data from 1986 to 2000 to examine what determines whether households fall below the poverty line over this period and investigates how the impact of these determinants has changed through time. We find that large households and households with more non-working members are more likely to be poor, suggesting that perhaps the change from the old implicit price subsidies, based on household size, to an explicit income subsidy, based on employment, has worsened the position of large families. Further investigation into regional poverty variation indicates that over the 1986-93 period food price increases were also a major contributing factor. Between 1994 and 2000, the worsening of the economic situation of state sector employees contributed to the poverty increase.

Introduction to the Special Section: Poverty and Inequality in China

Pre-reform China can be characterized as a country with equality of poverty—a largely egalitarian society with very low per capita GDP. In the late 1970s, hundreds of millions of people lived in absolute poverty. Economic reforms that began with the rural household production responsibility system in late 1978, and then spread into other sectors of the economy, have transformed China economically and socially. The annual growth rate has averaged 9% in the last quarter of a century. The 2005 per capita income is almost six times that of 1985. This unprecedented growth rate, coupled with government efforts in reducing poverty which first started in 1980, has led to remarkable poverty reduction, particularly in rural China.According to the World Bank, China lifted 422 million people out of poverty during 1981–2001. This large-scale poverty reduction in China owes a great deal to the rural production responsibility system, which is sometimes termed “second land reform”. Under this system, land was decollectivized and allocated to individual households on the basis of household size and household labor force. This ensured that early economic growth in China was pro-rural and inclusive. As a consequence, rural inequality declined and the urban–rural gap narrowed. Since the urban–rural gap comprises over 50% of China’s total inequality, income distribution in China must have improved significantly over that period. This, together with high economic growth, necessarily translated into large drops in poverty. As the impact of rural reform leveled off and the reform emphasis was shifted to urban China in the mid 1980s, overall inequality in China stopped declining and started to climb. Since then, little attention had been paid to equity concerns until very recently. In other words, subsequent reforms were primarily targeted at improving economic efficiency, which prompted resource flows to coastal provinces and non-farming sectors. This market-driven mechanism of factor allocation has undoubtedly contributed to the remarkable growth in China, particularly in the relatively affluent areas and urban China, leading to an enlarged urban–rural gap and a growing regional inequality. From this perspective, the rich have gained more than the poor from reforms in China. It is precisely this worsening distribution that has caused the recent slowdown in poverty reduction, even reversal, in China. At present, the Chinese government is confronted with the poverty–growth– inequality triangle. While equity may have to be sacrificed in order to initiate and maintain growth, future poverty reduction cannot be achieved without improved distribution. Conversely, tackling inequality and poverty in China requires more resources for the less efficient rural sector and perhaps less productive regions, which would

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

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).

Poverty, Pro-Poor Growth and Mobility: A Decomposition Framework with Application to China

In reviewing the current status of poverty research, Thorbecke (2004) noted that most unresolved issues in poverty analysis are related to the dynamics of poverty. One approach to understanding the dynamics of poverty is to decompose the changes of poverty over time, captured by changes in a particular poverty measure, into their two proximate contributing factors: the growth of average income and shifts in the distribution of income (Datt and Ravallion 1992).1 While a change in the poverty measure represents the total gains (or losses) to the poor, the distributional component of the decomposition can be interpreted as an indication of whether and to what extent aggregate income growth has been ‘pro-poor’. If the distributional component is negative (that is, poverty reducing), the poor are said to have benefited more than pro-portionately from income growth and, as a result, increased their share of total income.