The impact of growth and inequality on rural poverty in China

This paper analyzes the evolution of poverty in China from the late 1980s to the late 1990s, employing a version of Shapley decomposition tailored to unit-record household survey data. The changes in poverty trends are attributed to two proximate causes—income growth and shifts in income distribution. Different data sets, poverty lines, poverty measures, and equivalence scales are used to examine the robustness of the results. Potential biases arising from ignoring differential regional prices and inflation are also investigated. Notwithstanding some ambiguities in the results, it is consistently found that rural poverty increased in the second half of the 1990s and adverse distributional changes are the main cause. Journal of Comparative Economics 34 (4) (2006) 694–712.     

浅析贫困、经济增长与脱贫时间——基于中国城镇居民调查数据的分析

20世纪90年代以来，经济增长和收入分配不平等对于城镇人口脱贫时间产生了消极影响。研究发现，城镇贫困在1997年达到高峰，然后逐渐缓和；贫困人口的收入增长在初期能使脱贫时间迅速减少，但边际效果是递减的；贫困人口之间的收入分配不平等延长了脱贫时间，如果贫困人口的初始收入增加，则会明显缩短脱贫时间。     

POVERTY AND INCOME INEQUALITY IN LATIN AMERICA DURING THE 1980s

On average, poverty and income inequality increased in Latin America during the 1980s. Forty-six percent of the increase in poverty took place in the cities of Brazil alone, though part of this reflects the migration of poor rural inhabitants to urban areas. There is strong evidence that both income inequality and poverty mirrored the economic cycle, rising during recession and falling during recovery. Economies that grew (e.g. Colombia, Costa Rica) performed better with respect to poverty and income inequality than those that stagnated. In particular, countries that failed to stabilize effectively (e.g. Brazil, Peru) experienced substantial increases in poverty. Educational attainment has the greatest correlation with both income inequality and the probability of being poor. From a policy standpoint, there is a clear association between the provision of education, lessening of income inequality, and poverty reduction.     

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.     

GROWTH, POVERTY, AND INEQUALITY IN LATIN AMERICA: A CAUSAL ANALYSIS, 1970–94

Taking advantage of consistent poverty and income inequality data for 12 Latin American countries between 1970 and 1994, we analyze the determinants of changes in the incidence of urban and rural poverty and in Gini coefficients over spells of years, stressing in particular the role of aggregate income growth. We find that income growth reduces urban and rural poverty but not inequality. We also find that income growth is more effective in reducing urban poverty if the levels of inequality and poverty are lower, and the levels of secondary education higher. We show that there is an asymmetry in the impact of growth on poverty and inequality, with recession having strong negative effects on both poverty and inequality. Since growth does not reduce inequality, economic cycles create ratchet effects on the level of inequality. However, post-structural adjustment growth is quite effective at reducing poverty, particularly if inequality is low.     

Income, income inequality, and health: Evidence from China

This paper tests using survey data from China whether individual health is associated with income and community-level income inequality. Although poor health and high inequality are key features of many developing countries, most of the earlier literature has drawn on data from developed countries in studying the association between the two. We find that self-reported health status increases with per capita income, but at a decreasing rate. Controlling for per capita income, we find an inverted-U association between self-reported health status and income inequality, which suggests that high inequality in a community poses threats to health. We also find that high inequality increases the probability of health-compromising behavior such as smoking and alcohol consumption. Most of our findings are robust to different measures of health status and income inequality. Journal of Comparative Economics 34 (4) (2006) 668–693.     

Growth,inequality, and poverty reduction in developing countries: Recent global evidence

The study presents comparative global evidence on the transformation of economic growth to poverty reduction in developing countries, with emphasis on the role of income inequality. The focus is on the period since the early-mid-1990s when growth in these countries as a group has been relatively strong, surpassing that of the advanced economies. Both regional and country-specific data are analyzed for the $1.25 and $2.50-level poverty headcount ratios using World Bank Povcalnet data. The study finds that on average income growth has been the major driving force behind both the declines and increases in poverty. The study, however, documents substantial regional and country differences that are masked by this ‘average’ dominant-growth story. While in the majority of countries, growth was the major factor behind falling or increasing poverty, inequality, nevertheless, played the crucial role in poverty behavior in a large number of countries. And, even in those countries where growth has been the main driver of poverty-reduction, further progress could have occurred under relatively favorable income distribution. For more efficient policymaking, therefore, idiosyncratic attributes of countries should be emphasized. In general, high initial levels of inequality limit the effectiveness of growth in reducing poverty while growing inequality increases poverty directly for a given level of growth. It would seem judicious, therefore, to accord special attention to reducing inequality in certain countries where income distribution is especially unfavorable. Unfortunately, the present study also points to the limited effects of growth and inequality-reducing policies in low-income countries.     

GROWTH, INEQUALITY, AND POVERTY: A CAUTIONARY NOTE

Economic growth had less impact on poverty rates in the 1980s than in the 1960s. Could this be explained by Locke Anderson's observation that the higher median income, the greater the amount of growth needed to achieve a percentage point fall in the poverty rate? No, higher poverty rates are due instead to the rise in income inequality. With higher inequality, however, trickle down could be as effective in the 1990s as it was in the late 1960s. More generally, assessments of anti-poverty policy must recognize that inequality is as vital to changes in the poverty rate as growth in mean income.     

INCOME REDISTRIBUTION IN URBAN CHINA BY SOCIAL SECURITY SYSTEM—AN EMPIRICAL ANALYSIS BASED ON ANNUAL AND LIFETIME INCOME

This study investigates the redistributive effect of social security reform in urban China using the nationally representative urban household surveys of 1995 and 2002. The main findings are as follows. First, public pension is the main income for the elderly in urban China. The majority of people aged 60 and over (72% in 1995 and 82% in 2002) receive a pension. Second, the social security system in urban China has increased the income of low‐income and older age groups and reduced the relative poverty rate. However, the redistributive effect did not offset the expanding income inequality, which resulted in the Gini coefficient of redistributed income in 2002 being higher than that in 1995. Third, during 1995 and 2002, both low‐income and high‐income groups received a positive net benefit from the social security system, but the net benefit increased with income. The Chinese social security system lacks progressivity in contribution, and does not favor the poor in terms of benefits. Fourth, assuming that the reformed policy was applied to public sector employees, the long‐term redistributive effect of the pension system for the working population, calculated using their lifetime income, is larger. (JEL D31, H55, I38)     

Poverty, Growth, and Redistribution: a Study of Iran

The paper examines changes in the extent of poverty in Iran in the period 1983 to 1993. More specifically, it investigates the contributions of growth and redistribution factors to changes in poverty over this period of ten years. The analysis is based on household‐level data relating to three Household Income and Expenditures Surveys of 1983, 1988, and 1993. The study reveals that the extent of poverty in the rural sector declined slightly, whereas in the urban sector it increased significantly. Decomposition of changes in poverty into growth and redistribution components indicates that in each sector the redistribution component was positive, implying that the deterioration of income inequality contributed to the worsening of poverty. The growth component, however, affected the two sectors differently: it contributed to a reduction in poverty in rural areas and an increase in urban areas.     

Not by growth alone: The role of the distribution of income in regional diversity in poverty reduction

This study examines the role of the distribution of income in determining the responsiveness of poverty to income growth and changes in income inequality using panel data of 58 developing countries for the period 1980-1998. We show that the large cross-regional variation in the capacity of income growth to reduce poverty, i.e. the income elasticity, is largely explained by differences in the initial distribution of income and present region and time specific estimates of the income and Gini elasticities of poverty. We find that the income elasticity of poverty in the mid-1990s equals −1.31 on average and ranges from −0.71 for Sub-Saharan Africa to −2.27 for the Middle East and North Africa, and that the Gini elasticity of poverty equals 0.80 on average and ranges from 0.01 in South Asia to 1.73 in Latin America. Furthermore we show that while differing income growth rates account for most of the regional diversity in poverty trends, the additional impact of differences across regions in rates of inequality change and income and inequality elasticities of poverty is almost always significant and far too large to be ignored, most notably so in Eastern Europe and Central Asia.     

Do inward looking trade policies affect poverty and income inequality? Evidence from Indonesia's recent wave of rising protectionism

Unlike previous studies which often focus on trade liberalisation, this paper examines the impact of protectionism in the form of import tariffs and mineral export taxes on rural and urban poverty and income inequality for the first time. Using a dynamic computable general equilibrium model on Indonesia, mineral export taxes were found to adversely affect urban and rural poverty but income inequality hardly changed as the decline in income in the higher income group is not significantly different to the decline in low income groups. However, if smelters for mineral ore are developed, then there is not only a fall in poverty, more so for the rural than urban, but there is some decline in income inequality. On the other hand, although the current imposed import tariffs do not affect poverty or income inequality, any further increases from the current low average MFN applied rates, will see a rise in rural and urban poverty and income inequality. By and large, any small improvements in the trade balance brought upon by the mineral tax and import tariffs are more than outweighed by the substantial decline in real household consumption expenditure due to falls in employment and wages, thereby leading to a fall in GDP growth.     

How and why transition made income inequality increase in urban Russia: A local study

Using sample surveys from the city of Taganrog in 1989 and 2000, we investigate household income, its composition, and its distribution in urban Russia. Income inequality increased greatly as real income at the lowest part of the distribution decreased considerably. Earnings are more concentrated in the upper part of the income distribution in 2000 than in 1989. For many households, public transfers, allowances, private transfers, or subsidiary earned income prevented income from falling further. However, Russia did not inherit from its Soviet past an efficient progressive tax system or programs to protect jobless workers and households facing severe drops in income. Journal of Comparative Economics 33 (4) (2005) 772–787.     

Short-term trends in China’s income inequality and poverty: evidence from a longitudinal household survey

In the past three decades, income inequality in China has increased rapidly relative to both China’s own past and other countries at similar levels of economic development. Using recent longitudinal data from the China Family Panel Studies (CFPS), this article examines changes in income inequality and poverty prevalence between 2010 and 2012. Surprisingly, we find a modest decline in income inequality as measured by the Gini coefficients in the CFPS data. The urban–rural gap narrowed, with rural families enjoying faster income growth than urban families enjoyed. Income growth was greater for middle-income families than for families with either high or low incomes in 2010. By all measures, poverty was greatly reduced between 2010 and 2012. Two-thirds of families that had been poor in 2010 escaped poverty by 2012.     

From internal imbalances to global imbalances: a survey on the causes of China’s export-led growth

There is a broad consensus that China’s export- and investment-led growth model is unsustainable and therefore needs to become more balanced. In the public debate, Chinese exchange rate interventions are mostly made (solely) responsible for this. But it is unclear whether and how much the Renminbi is undervalued, and if an exchange rate appreciation helps to reduce China’s current account surplus significantly. This survey reviews the international literature on China’s export-oriented growth model. Internal structural imbalances in the Chinese economy, resulting in an extremely low consumption-to-GDP share by historical and international standards, play hereby a central role. Related to this are: 1) the drop in household and wage income as a share of GDP and low employment growth, and its impact on consumption demand; 2) the increase in income uncertainty and inequality, and its impact on household savings; and 3) the role of government spending, i.e., high and increasing public surpluses. The central policy challenge is therefore to increase household incomes, and to reduce income inequality and uncertainty.     

All About the Giants: Probing the Influences on World Growth and Income Inequality at the End of the 20th Century

This paper presents estimates of world output growth from 1970to 2000, the distribution of income among countries and personsfor the years 1980, 1990 and 2000, and world income povertyrates for the same years. It also presents the results of aseries of simulation exercises that attempt to isolate the effectof particular country and regional experiences on world outputgrowth and changes in global income inequality and poverty. The authors find that rapid growth in China (despite a downwardadjustment of official growth estimates) had a powerful impacton the growth of world output in both the 1980s and 1990s, butthat negative economic growth in Eastern Europe more than offsetthat effect in the 1990s. With respect to the distribution ofworld income between countries, the impressive growth performancesof the worlds most populous countries, China and India, ensureddecreasing levels of inequality during both the 1980s and 1990s.When the distribution of world income between persons is measured,the equalizing effect of China's rapid growth remains dominantthrough both the 1980s and 1990s, despite the contradictoryimpact of increasing domestic inequality. Only India's influenceremained substantial by comparison. Other identifiable eventsof the period, such as the economic contraction in Eastern Europeand continued economic decline in Africa, had little statisticalimpact. However, when the combined influence of China and India'sabove-average growth rates is removed, or their size effectdampened, the improving global distribution of (inter-countryand inter-personal) income suggested by all statistical measuresbecomes one of sharply worsening inequality. The impact of thesetwo countries is similarly critical with respect to global povertyreduction. (JEL F0, I3, O4)     

Inequality Beyond GDP: A Long View

This paper addresses international inequality in multidimensional well-being during the last one-and-a-half centuries. Inequality fell in health and education since the late 1920s, due to the globalization of mass schooling and the diffusion of the health transition, but only dropped in population-weighted terms from 1970 onward for political and civil liberties, as the emergence of authoritarian regimes increased its dispersion since the end of World War I. In terms of augmented human development inequality declined since 1900. These results are at odds with per capita income inequality that rose over time and only shrank from 1990 onward. The gap between the OECD and the Rest of the world accounted only partially for inequality in well-being since the dispersion within developing regions became its main driver from the mid-20th century onward. Countries in the middle and lower deciles of the world distribution achieved the largest relative gain over the past century.     

Measurement of Changes in Economic Welfare in India: 1970–2001

This paper provides time series estimates of measures of economic welfare, inequality, decile class specific true cost of living index and poverty measures based on 20 rounds of National Sample Survey data for the period 1970–2001. It has estimated piece-wise Linear Expenditure System (LES) for very poor, moderately poor, non-poor low and non-poor high expenditure groups for rural as well as urban areas. Money metric utility for deciles are derived from the money metric utility function and social welfare index is constructed by aggregating metric utility of the deciles. Using social welfare index as well as real per capita consumption, the paper analyses the changes in economic welfare over the three decades. Using conventional measures, the paper analyses the changes in poverty and inequality during 1970–2001. The paper also provides estimates of the welfare effects of commodity prices.

     

The impact of the Indonesian income tax reform: A CGE analysis

This study evaluates the impacts of Indonesia's recent income tax reforms on key macroeconomic variables, as well as the impacts on poverty and income distribution. It was found that the reductions in personal income tax and corporate income tax increase economic growth under a balanced budget assumption. The policy reforms also lead to a small reduction in the incidence of poverty. However, the policies also lead to an increase in income inequality because the tax cut is more beneficial to households in the highest income categories. It is recommended that future tax cuts should target the urban and rural poor.     

Disentangling the Poverty Effects of Sectoral Output,Prices, and Policies in India

This paper attempts to disentangle the poverty effects of key policy variables that directly affect the poor (namely the government‐led channel of development spending and financing) in both agricultural and non‐agricultural sectors after accounting for the effect of respective sectoral per capita income and prices, using data from India over five decades. The paper emphasizes the sectoral composition of income and prices as mechanisms influencing the level of poverty and establishes empirically that it is the rise in non‐agricultural per capita income that reduces rural poverty via the channel of internal migration, after having controlled for the variation in key components of fiscal spending and monetary/financial policy via the availability of credit. Uneven sectoral growth pattern explains why urban poverty becomes a spill‐over of persistent rural poverty when the agricultural sector shrinks. While checking for robustness, there is evidence that the rise in non‐agricultural income alone may not reduce rural poverty, when measured in terms of rural infant mortality rate as a non‐income indicator of well‐being.