Income inequality in China 1952-2017: persistence and main determinants

Authors

DOI:

https://doi.org/10.24136/oc.2021.028

Keywords:

China, income inequality, fractional integration, persistence, economic growth

Abstract

Research background: China's economic growth, however remarkable, is due to the Harrod-Domar nature of economic growth and, therefore, limited. The main limitation lies in the extension of the neoclassical growth model and the government need to decrease regional disparities using new migration, urbanization and social policy.

Purpose of the article: It is the rising regional disparity in the total factor productivity to cause the income inequality increase (measured by GINI index) in China from 1952?2017. Our paper brings new insight into the main inequality determinants and causes in China, using a fractional integration modeling framework.

Methods: Using fractional integration, we find total factor productivity (TFP), real gross domestic product per capita and growth and expenditures for the social safety net and employment effort to have a statistically significant impact on GINI. Income inequality in China is of a persistent nature with the effects of the shocks affecting the GINI index enduring over time.

Findings & value added: The results of this study highlight the importance for model/policy changes by the policy makers and practitioners in China to deal with the inequality issue. This involves improving the growth model through innovation and technological advancement, relaxing TFP dependence on the physical inputs (labor and capital) to reduce income inequality.

Downloads

Download data is not yet available.

References

Abbritti, M., Gil-Alana, L. A., Lovcha, Y., & Moreno, A. (2016). Term structure persistence. Journal of Financial Econometrics, 14(2), 331?352. doi: 10.1093/jj finec/nbv003.

Bloomfield, P. (1973), An exponential model in the spectrum of a scalar time series. Biometrika, 60, 217?226. doi:10.1093/biomet/60.2.21.

Chen, G., Glasmeier, A., Zhang, M., & Shao, Y. (2016). Urbanization and income inequality in post reform China: a causal analysis based on time series data. Plos One, 11(7), e0158826. doi: 10.1371/journal.pone.0158826.

Chen, Z., & Lu, M. (2009). Is China sacrificing growth when balancing interregional and urban-rural development? In Y. Huang & A. Magnoli Bocchi (Eds.). Reshaping economic geography in East Asia. Bank of Reconstruction and Development/The World Bank, 241?257.

Chen, Y. (2019). Misallocation of human capital and productivity: evidence from China. Economic Research-Ekonomska Istraživanja, 32(1), 3342?3359. doi: 10.1080/1331677X.2019.1663546.

Cheremukhin, A., Golosov, M., Guriev, S., & Tsyvinski, A. (2015). The economy of People s Republic of China from 1953. NBER Working Paper, 21397.

Diebold, F. X., & Inoue, A. (2001). Long memory and regime switching. Journal of Econometrics, 105(1), 131?159. doi: 10.1016/S0304-4076(01)00073-2.

Feenstra, R. C., & Inklaar, R., & Timmer, M. P. (2015). The next generation of the Penn World Table. American Economic Review, 105(10), 3150?82. doi: 10.125 7/aer.20130954.

Fujiwara, I., Otsu, K., & Saito, M. (2008). The global impact of Chinese growth. Institute for Monetary and Economic Studies Bank of Japan Discussion Paper Series, 2008-E-22.

Ghil, M., Allen, M. R., Dettinger, M. D., Ide, K., Kondrashov, D., Mann, M. E., Robertson, A. W., Saunders, A., Tian, Y., Varadi, F., & Yiou, P. (2002). Advanced spectral methods for climatic time series. Reviews of Geophysics, 40(1), 1003, doi: 10.1029/2000RG000092.

Gil-Alana, L. A, Skare, M., & Claudio-Quiroga, G. (2020). Innovation and knowledge as drivers of the ?great decoupling? in China: using long memory methods. Journal of Innovation and Knowledge, 5(4), 266?278. doi: 10.1016/j. jik.2020.08.003.

Gil-Alana, L. A., & Robinson, P. M. (1997). Testing of unit roots and other nonstationary hypotheses in macroeconomic time series. Journal of Econometrics, 80, 241?268. doi: 10.1016/S0304-4076(97)00038-9.

Granger, C. W. J. (1980). Long memory relationships and the aggregation of dynamic models. Journal of Econometrics, 14, 227?238. doi: 10.1016/0304-4076 (80)90092-5.

Granger, C. W. J. (1981). Some properties of time series data and their use in econometric model specification. Journal of Econometrics, 16, 121?130. doi: 10.1016/0304-4076(81)90079-8.

Granger, C. W. J., & Joyeux, R. (1980). An introduction to long memory time series and fractional differencing. Journal of Time Series Analysis, 1, 15?29. doi: 10.1111/j.1467-9892.1980.tb00297.x.

Granger, C. W. J., & Huimg, N. (2004). Occcasional structural braks and long memory with an application to the S&P absolute stock returns. Journal of Empirical Finance, 11(3), 399?421. doi: 10.1016/j.jempfin.2003.03.001.

Han, J., Zhao, Q., & Zhang, M. (2016). China's income inequality in the global context. Perspectives in Science, 7, 24?29. doi: 10.1016/j.pisc.2015.11.006.

Hong, T., Yu, N., Sorm, S., & Gao, B. (2019). How much does regional integration contribute to growth? An analysis of the impact of domestic market integration on regional economic performance in China (1997?2011). Economic Research-Ekonomska Istraživanja, 32(1), 3183?3204. doi: 10.1080/1331677X. 2019.1592006.

Hosking, J. R. M. (1981). Fractional differencing. Biometrika, 68, 165?176. doi: 10.1093/biomet/68.1.165.

Jianlin, F. (2004). Income disparities in China: a review of Chinese studies. In Income disparities in China, an OECD perspective. OECD, 27-49.

Joshua, J. (2015) Neoclassical and endogenous growth models. In The contribution of human capital towards economic growth in China. London: Palgrave Macmillan. doi: 10.1057/97811375293672.

Kanbur, R., & Zhang, X. (2005). Fifty years of regional inequality in China: a journey through central planning reform and openness. Review of Development Economics, 9(1), 87?106. doi: 10.1111/j.1467-9361.2005.002 65.x.

Kanbur, R., Wang, J., & Zhang, X. (2017). The great Chinese inequality turnaround. Bank of Finland, BOFIT Discussion Papers, 6/2017.

Kang, L., & Peng, F. (2018). Economic reform and productivity convergence in China. Journal of Economic Theory and Practice, 17(1), 50?82. doi: 10.1177/0 976747918773129.

Lin, S. (2009). The rise and fall of China?s government revenue. EAI Working Paper, 150.

Liu, H., & He, Q. (2019). The effect of basic public service on urban-rural income inequality: a sys-GMM approach. Economic Research-Ekonomska Istraživanja, 32(1), 3205?3223. doi: 10.1080/1331677X.2019.1661005.

Luckstead, J., Choi, S. M., Devadoss, S., & Mittelhammer, R. C. (2014). China?s catch-up to the US economy: decomposing TFP through investment-specific technology and human capital. Applied Economics, 46(32), 3995?4007. doi: 10.1080/00036846.2014.948677.

Luo, X., & Zhu, N. (2008). Rising income inequality in China: a race to the top. Policy Research Working Paper. World Bank, 4700.

Maddison, A. (1998). Chinese economic performance in the long run. OECD Development Centre Studies.

Majid, N. (2015). The great employment transformation in China. ILO Working Paper, 195.

McCombie, J., & Spreafico, M. (2017). On income inequality: the 2008 great recession and long term growth. In The crisis conundrum: how to reconcile economy and society. Semantic Scholar. doi: 10.1007/978-3-319-47864-72.

Milanović, B. (2019). All the GINIS dataset. Graduate Center, City University of New York and Stone Center on Socio-economic Inequality. Retrieved form https://stonecenter.gc.cuny.edu/research/all-the-ginis-alg-dataset-version-februa ry-2019/.

Ministry of Finance China. Retrieved from http://www.mof.gov.cn/index.htm, (1.06.2019).

National Bureau of Statistics of China database. Retrieved from http://www.stats. gov.cn/english/Statisticaldata/AnnualData/ (1.06.2018).

Quadrini, V., & Ríos-Rull, J.-V., (2015). Inequality in macroeconomics. In A. B. Atkinson & F. Bourguignon (Eds.). Handbook of income distribution. Elsevier. 1229?1302. doi: 10.1016/B978-0-444-59429-7.00015-7.

Solt, F. (2016). Measuring income inequality across countries and over time: the standardized World Income Inequality Database. SWIID Version 8.1, May 2019.

Stratford, K., & Cowling, A. (2016). Chinese household income, consumption and savings. Bulletin, Reserve Bank of Australia, September Quarter, 31?40.

Teyssiere, G., & Kirman, A. P. (2007). Long memory in economics. Berlin, Heidelberg: Springer.

The Conference Board Total Economy Database? (Original version). Retrieved form https://www.conference-board.org/data/economydatabase/index.cfm?id= 27762 (1.04.2019)

UNCTAD (2012). Trade and development report. Evolution of income inequality: different time perspectives and dimensions. New York: UN.

University of Groningen and University of California, Davis, Total Factor Productivity at Constant National Prices for China [RTFPNACNA632NRUG]. Federal Reserve Bank of St. Louis. Retrieved, https://fred.stlouisfed.org/series/RT FPNACNA632NRUG (14.10.2019).

Wang, C., Wan, G., & Yang, D. (2015). Income inequality in the People' s Republic of China: trends, determinants, and proposed remedies. In I. Claus & L. Oxley (Eds). China?s economy, a collection of surveys. Wiley Blackwell, 99?125.

Wang, S., Kenderdine, T., & Qi, Z. (2017). Working for less: income inequality and the diminishing share of labor in China?s national wealth. Asian Social Science, 13(6), 81?94. doi: 0.5539/ass.v13n6p81.

Wei, Z., & Hao, R. (2011). The role of human capital in China?s total factor productivity growth: a cross-province analysis. Development Economics, 49(1), 1 ? 35. doi: 10.1111/j.1746-1049.2010.00120.x.

Wenxiu, H. (2004). The evolution of income distribution disparities in China since the reform and opening-up. In Income disparities in China, an OECD Perspective. OECD. doi: 10.1787/9789264017214-en.

Wroblowsky, T., & Yin, H. (2016). Income inequalities in China: stylized facts vs. reality. Perspective in Science, 7, 59?64. doi: 10.1016/ j.pisc.2015.11.011.

Yang, W., Chuanglin, F., Chunliang, X., & Daqian, L. (2012). A new approach to measurement of regional inequality in particular directions. Chinese Geographical Science, 22(6), 705?717. doi: 10.1007/s11769-012-0556-7.

Zanden, J. L., Baten, J., Foldvari, P., & Leeuwen, B. (2014). The changing shape of global inequality 1820?2000; exploring a new dataset. Review of Income and Wealth, 60(2), 279?297. doi: 10.1111/roiw.12014.

Zhang, Z., Liu, A., & Yao, S. (2001). Convergence of China?s regional incomes 1952?1997. China Economic Review, 12, 243?258. doi:10.1016/s1043-951x(0 1)00053-0.

Zhang, X, Wan, G, Wang, C, & Luo, Z. (2017). Technical change and income inequality in China. World Economy, 40(11), 2378?2402. doi: 10.1111/twec .12531.

Zhao, X-Z, Zhao, Y. B, Chou, L-C., & Leivang, B. H. (2019). Changes in gender wage differentials in China: a regression and decomposition based on the data of CHIPS1995?2013. Economic Research-Ekonomska Istraživanja, 32(1), 3162?3182. doi: 10.1080/1331677X.2019.1660906.

Zhou, Y., & Song, L. (2016). Income inequality in China: causes and policy responses. China Economic Journal, 9(2), 186?208. doi: 10.1080/17538963.2016 .1168203.

Zhuang, J., & Shi, L. (2016). Understanding recent trends in income inequality in the people s Republic of China. Asian Development Bank Economics Working Paper Series, 489.

Ziesemer, T. (2016). Gini coefficient of education for 146 countries, 1950-2010, Bulletin of Applied Economics, 3(2), 1?8.

Downloads

Published

2021-12-21

How to Cite

Skare, M., Gil-Alana, L. A., Claudio-Quiroga, G., & Pržiklas Družeta, R. (2021). Income inequality in China 1952-2017: persistence and main determinants. Oeconomia Copernicana, 12(4), 863–888. https://doi.org/10.24136/oc.2021.028

Issue

Section

Articles