Inward and outward FDI and income inequality: evidence from Europe

This paper examines the effects of inward and outward FDI on income inequality in Europe using panel cointegration techniques and unbalanced panel regressions. Our main result is that both inward FDI and outward FDI have, on average, a negative long-run effect on income inequality. This result is robust to employing alternative estimation methods, controlling for potential outliers, using different measures of FDI and inequality, and changing the period and sample selection. Other findings are: (i) while the long-run effect of inward and outward FDI on income inequality is clearly negative, their short-run effect appears to be positive. (ii) Long-run causality runs in both directions, suggesting that an increase in inward and outward FDI reduces income inequality in the long run, and that, in turn, a reduction in inequality leads to an increase in inward and outward FDI. (iii) There are large cross-country differences in the long-run effects of inward and outward FDI on income inequality; for some countries the long-run effects on income inequality are positive.     

Economic growth and income inequality in the Asia-Pacific region: A comparative study of China,Japan, South Korea,and the United States

This paper builds an inequality-growth-redistribution nexus, and applies the Engle–Granger two-step ECM approach to estimate the long-run and short-run relationships between inequality and growth for four economies: China, Japan, South Korea, and the United States. Our estimation results support the S-shaped curve hypothesis relating GDP per capita to inequality with different starting points for the four economies. For the reverse relationship, we find a positive causal relationship for China, Japan, and the United States, indicating that increased income inequality spurred economic growth. In addition, we find mixed results on the effect of trade openness on inequality and growth. Trade openness reduced inequality in the United States and Japan, worsened it in China and had no significant effect in South Korea. In the inequality-GDP per capita relationship, exports provided an impetus to economic growth for Japan. As for redistribution, although fiscal redistributive measures reduced inequality in Japan, they played no major role in the other three countries. With regard to the inequality-GDP per capita relationship, all countries except for China show a negative effect of fiscal redistribution on GDP per capita.     

The growth,poverty and inequality nexus in South Africa: Cointegration and causality analysis

This study empirically established the long-run relationship and causality effects that exist between growth, poverty and inequality. The analysis was carried out on a panel of nine South African provinces from 1995 to 2012. To capture poverty and inequality in a broader context, two measures of poverty (income and non-income) and three measures of inequality (income, education and land) were adopted for the study. The results confirm that there is a long-run relationship between growth, poverty and inequality. Notable results from the causality tests suggest that growth does not promote equal distribution of income in society but as income distribution begins to equalise, economic growth rises. This is regarded as growth–inequality disconnect. The unidirectional causality, which runs from income poverty to income inequality, suggests that a rising level of income poverty will lead to falling income inequality in the society; likewise, income inequality increases as non-income poverty declines.     

External Shocks and High Volatility in Consumption in Low‐Income Countries

According to the well‐known concept of consumption smoothing, the volatility of consumption is low even when income is volatile; this is confirmed by data from G7 countries. Surprisingly, however, consumption volatility in many low‐income countries is nontrivially higher than income volatility. Here I examine what causes high consumption volatility in low‐income countries. In general, volatile consumption makes consumers worse off. Therefore, understanding the causes of high consumption volatility can contribute to improving welfare in low‐income countries by suggesting measures to assist in the stabilization of consumption. Unlike much previous research, I focus on international factors when explaining high consumption volatility. The results suggest that external shocks, which are far more volatile in low‐income countries than in industrialized countries, strongly swing consumption. By capturing these mechanisms, the model I use successfully accounts for consumption volatility's differences between the sample low‐income country and sample industrialized country.     

Trade openness and income inequality in China and the SAARC Region

The paper empirically examines the effects of trade liberalisation on income inequality in China and the South Asian Association for Regional Cooperation countries. Panel data analysis is conducted for the period of 1973 to 2012. The results show that liberal trade policies have increased income inequality in these countries. These results are robust to alternative liberalisation measures. The control variables used have differing effects on income distribution. Per capita income has an increasing effect on income inequality, while education, financial development, financial openness, democracy, and government size are shown to reduce income inequality. These outcomes can be expected to have important policy implications for the use of trade liberalisation in these countries.     

The Effects of Expected and Unexpected Volatility on Long-Run Growth: Evidence from 18 Developed Economies

This article examines the relationship between output volatility and long-run growth for 18 developed countries between 1880 and 1990. The analysis builds on the existing literature by decomposing output growth volatility into expected and unexpected components and then examining whether the types of volatility have different effects on long-run growth. The results are consistent with the view that unexpected volatility reduces long-run growth and that expected volatility increases long-run growth. The results also suggest that the combined effect of expected and unexpected volatility is to reduce long-run growth for most countries and most time periods.     

Income distribution in the mirror of height differences: The case of Spain 1895–1950

Changes in the differences of heights among social groups could indicate shifts in income inequality. However, they can result from other factors as well. This article discusses which factors are these and, hence, which variables should we control for before taking height differences as a proxy for income inequality. An application to Spain from late nineteenth to mid-twentieth century seems to sustain the authors' contentions, and provide some conclusions for this country and time period. Given the scarcity of data on family incomes, this method could prove valuable for the study of the long-run evolution of income distribution in other countries.     

Income and consumption inequality in China: A comparative approach with India

We analyse income and expenditure distribution in China in a comparative perspective with India. These countries represent extreme cases in the relationship of inequality to both wellbeing indicators. Income is more highly concentrated than expenditure in India, especially at the top of the distribution. Both types of inequality are similar in China, although expenditure is more unequally distributed than income in urban areas. China has a much stronger correlation in individual ranks and levels between the two wellbeing distributions. As a result, expenditure inequality is higher in China than in India, but income inequality much lower. This results partially from differences in population composition, such as China being more urbanized and having smaller households, but mostly from differences in conditional income distributions, especially by attained education of the household head. We show that hybrid measures of wellbeing combining income and expenditure can be useful for such cross-country comparison.     

Migration,population aging,and income inequality in China

In this study, we examine the effects of four demographic factors, namely, birth, death, natural aging, and net migration, on population aging and income inequality in China. We use the official Chinese data and the China Household Income Project Survey data for the 2007–2013 period and apply a decomposition model based on the Shapley method. Unlike previous studies, we include migration in our decomposition model and find that natural aging is the primary factor contributing to population aging in both urban and rural areas. Further, migration may accelerate population aging in rural areas. Moreover, migration contributes to reducing income inequality in urban areas, while widening income inequality in rural areas. The effect of migration is larger than those of birth, death, and natural aging on income inequality. The robustness checks confirm these conclusions.     

Does the "missing" high-income matter? -Income distribution and inequality revisited with truncated distribution

The issue of missing high-income data in household surveys has been a constant concern among researchers and practitioners when drawing inferences on inequality measures, discussing the relationship between poverty and growth, and examining the relationship between expenditure and income. We introduce a truncated distribution technique to correct the potential bias caused by the missing high-income data. Using 2002/2007/2013 Chinese Household Income Project Survey data and the 2002/2007/2014 US Consumer Expenditure Survey data, we test and estimate three commonly used income distributions: lognormal, Singh Maddala, and Beta II distribution with/without the truncation assumption. We find that the truncated Beta II distribution best describes income distribution in China, while the truncated Singh Maddala best fits the income in the US. The missing high-income in China has a significant but small effect on the Gini and Theil coefficients for 2007, whereas the missing high-income in the US has significant effects for 2007 and 2014. The Gini coefficient increases from the sample mean 0.44 to the simulation mean of truncated Beta II distribution as 0.47 for China in 2007 and increases from the sample mean 0.4422/0.4485 to the simulated mean of truncated Singh Maddala distribution 0.4506/0.4588 for 2007 and 2014 respectively. We also check the impact of missing low-income individuals on inequality assessment and find that the missing low-income data does not appear to underestimate inequality.     

Volatility widens inequality. Could aid and remittances help?

Review of World Economics - We analyse the relationship between income volatility and inequality and the conditional role played by aid and remittances. Using a panel of 142 countries for the...     

Income Inequality,Taxation, and Growth

Much recent theoretical and empirical research has focused on the relationship between income distribution and economic growth. The fiscal policy approach argues that inequality is linked to pressure for redistributionary taxation, leading to low capital investment and, therefore, growth. Empirical analyses are consonant with this view in that the long-run relationship between inequality and growth is negative. However, several empirical inconsistencies with the fiscal policy approach do emerge: (a) there exists a short-run, positive relationship between income inequality and growth and (b) the relationship between inequality and taxation is mixed, at best. This paper presents a simple theoretical model that reconciles the intuitively appealing fiscal policy approach with the empirical findings.     

贸易自由化对我国地区收入不平等的影响:来自中国的经验证据

文章基于协整的VAR模型从实证的角度研究了我国地区收入不平等与贸易自由化之间的长期均衡和短期动态关系。研究发现：（1）地区收入不平等、贸易自由化与经济增长之间存在长期均衡关系,贸易自由化和经济增长对于关注参数而言是弱外生变量;（2）贸易自由化在长期内减缓了我国地区收入不平等程度,但在短期内却导致了我国地区收入不平等程度的上升;（3）经济增长长期内趋于提高了我国地区收入不平等程度,但短期的影响方向不确定;（4）地区收入不平等是一个随机游走过程,不是一个含有结构突变的趋势平稳过程。     

The impact of past growth on poverty in Chinese provinces

The impact of prior economic growth on current poverty rates within provincial-level China is examined using panel data and semiparametric techniques. Results reveal that prior short-run growth raises poverty levels; prior long-run growth increases poverty in slow-growing provinces, while reducing poverty in faster growing provinces. Additionally, there is an inverted U-shaped relationship between poverty and income; i.e. at lower income levels, the poverty rate increases with income, while the opposite holds at higher income levels. However, higher savings rates or higher income inequality makes this tradeoff less favorable. Interestingly, many traditional poverty explanatory variables lack explanatory power after taking into account the impact of prior growth.     

Introduction to income inequalities and redistribution in china

This special section presents the main findings about long-run trends in inequality in China and its driving factors as they emerge from a country case study carried out under a UNU-WIDER supported project.¹ Special focus in the umbrella project were on three issues: (i) the role of earnings inequality and its determinants; (ii) the role of top incomes when administrative records or other sources can be combined with household surveys; and (iii) the redistributive impact of public policies. Main findings of the project including those for China results were presented in a special panel during the UNU-WIDER Think Development – Think WIDER development conference held in Helsinki in September 2018.²

1. Motivation

Inequality has once again emerged as a major issue in economic development across the developed and developing world, and addressing this challenge is key in the UN Sustainable Development Agenda. The UNU-WIDER conference on Mapping the Future of Development Economics held in Helsinki in September 2016³ led to the formulation of a project to study inequality in five major developing countries accounting for more than 40 per cent of the world’s population. UNU-WIDER implemented these studies under its Inequality in the Giants project,⁴ designed as part of a broader international effort to shed light on a set of new questions on between-country and within-country inequalities, by generating integrated datasets and applying a consistent methodology to investigate the determinants of inequality dynamics in some of the world’s largest economies. China was included among the five case countries, and the effort included both a series of papers on China, produced under the coordination of Professor Shi Li and various workshops and meetings. Coming to grips with inequality in China is an obvious priority for anyone interested in trends in global inequality; and the present special section contains five key papers produced in the context of the UNU-WIDER project and subsequently accepted for publication by the China Economic Review.

2. Content of the special section

The five papers on inequality in China presented in this special section cover different topics and jointly illustrate a key set of important themes in the recent evolution of China’s income distribution.The opening study by Luo, Li, and Sicular (LLS) provides an overview and analysis of the long-term evolution of inequality in China, while the next three papers — on urban wage inequality, public transfers, and top incomes — each illustrates and delves more deeply into important aspects of the broader trends in inequality.What are the main findings of these papers? The core finding is that inequality in China rose markedly from the 1980s through the early 2000s; only since 2008 has the upward trend stopped or reversed. LLS report and examine the underpinnings of this core finding, using the five waves of the China Household Income Project surveys conducted during 1988-2013. This paper also finds a considerable, ongoing reduction in rural poverty, and a poverty decomposition analysis indicates that this poverty reduction was mostly due to income growth rather than redistribution in rural areas.The second paper by Gustafsson and Wan (GW) is on urban wage inequality from 1988 to 2013 and it sheds further light on the changes in the distribution of wage earnings. The authors highlight that average wages have grown rapidly and that wage inequality increased until 2007. Moreover, age has become weaker and education stronger related with wage. Importantly, the gender wage gap once small widened rapidly between 1995 and 2007, and workers in foreign owned firm and the state sector enjoy a wage premium.While wages are the most important component of income, it is only part of the inequality story. One important additional question is the role of government taxes and transfers. Since the early 2000s, China has embarked on a major effort to put in place a universal social safety net. The study by Cai and Yue (CY), which is the third paper, assess the consequences of these efforts. Their key conclusions include that the same public policy may produce different redistributive implications. Moreover, if the government keeps increasing the social security transfer scale without changing its distribution, then inequality will increase in China. In addition, formal-sector pension takes up the biggest share and is the most un-equalizing sub-item of all social security transfers; and related to the first paper in the special section they argue that the government should spend more on Dibao and rural residents pension to reduce inequality.Arguably, income inequality measured using household survey data understates actual inequality because surveys have difficulty in capturing top incomes. In the Chinese case, concerns about such bias have increased in the past ten years due to the expansion of private wealth and growing numbers of super-rich. The fourth paper by Li, Li, and Wan (LLW) is on top incomes in China and it attempts to correct for this bias using income information for the Chinese super-rich from various sources. They conclude that the Gini coefficient of income inequality increases substantially when samples of top incomes are incorporated.Finally, Gradín and Wu (GW) analyse in the fifth and final study the distribution of income and expenditure in China in a telling comparative perspective with India. Both countries represent two extreme cases in the relationship of inequality using both wellbeing indicators. It emerges that the joint distribution of income and expenditure differs between China and India because there is a higher prevalence of people with a large mismatch between their ranks in income and consumption in India, especially in rural areas, and particularly amongst those reporting low income and high expenditure. The main compositional effects identified are the different demographic and geographical composition of the countries’ populations, mostly the smaller households (especially in rural areas) and the higher level of urbanization in China than in India. The lack of consistency of cross-country comparisons based on income or expenditure calls for the use of hybrid inequality measures combining data on both provided they are available in the same survey.

3. Concluding remarks

The studies brought together in this special section provide telling insights about the trends in inequality in China from which scholars and policy makers can learn a great deal. In a global perspective, further increases in China’s mean income and wealth, both now above the global means, will begin to raise global between-country inequality. This is important in and of itself. Moreover, while we cannot expect that all the world’s poorest countries will follow the same path as China considering that the initial conditions and the international context they face will be very different, the experiences from China do reinforce the observation that much can be done by policy to influence inequality outcomes. In particular, and as argued by Gradin, Leibbrandt, & Tarp, 2020 (forthcoming):“well-functioning labour markets that promote job-creation, decent pay and social inclusion, removing any legal or de facto discrimination based on gender, race, ethnicity or place of origin, providing equal access to human and physical capital, and empowering the most disadvantaged population groups, are a key driver of increased equality”.These insights also emerge clearly from the five China studies in this special section.     

Do the Chinese “Keep up with the Jones”?: Implications of peer effects,growing economic disparities and relative deprivation on health outcomes among older adults in China

What are the health effects of unequal economic growth? What are the health consequences of ‘keeping up with the Jones’? Many developed countries (e.g., US and Japan) have experienced significant income growth between 1950s and 2000s but population survey shows that on average the population is not growing more satisfied with life. Theories that attempt to respond to these findings hypothesize that as income grows, people may spend more on conspicuous consumption because they compare themselves with others in their peer groups and care about their position in socio-economic distributions relative to others. Indeed, public health studies have found a relationship between income inequality and adult health outcomes in developed countries. Specifically, there seems to be a correlation between social hierarchy and mortality, as well as a correlation between social hierarchy and morbidity.China is a prime study site due to its growing spatial inequalities in the past decade. Though China has been committed to economic reform, different regions and cities have encountered very disparate rates of development and growth. In this paper, we utilize a set of panel data collected in China (China Health and Nutrition Survey 1989–2004) to examine the effects of peer groups, relative deprivation, and income disparities on individual health outcomes such as the probability of high waist circumference, body mass index categories, probability of hypertension, nutritional intake as well as health behavior such as smoking. We use a combination of multi-level mixed effects modeling as well as factor analysis to examine these effects and find significant and differential effects of income quartiles, peer groups, relative deprivation, and Gini coefficient on health.     

Uncertainty, Flexible Exchange Rates, and Agglomeration

This paper shows that exchange rate volatility promotes agglomeration of economic activity. Under flexible rates, firms prefer to locate in large countries, where they would enjoy lower variability of sales, thus reinforcing concentration of firms in such locations. Empirical evidence on OECD countries demonstrates that for small (large) countries or currency areas, exchange rate volatility has a long-run negative (positive) effect on net inward FDI flows. Two implications arise: creating a currency area fosters agglomeration towards the area and dispersion within the area. JEL Classification Numbers: F12, F31, F33, F4, L16, R12     

Land, Factor Markets, and Inequality in Rural China: Historical Evidence

Drawing on a unique household-level data set from northeast China in the 1930s, this paper explores the connections between the distribution of land, factor markets, and income distribution. We test whether patterns of income inequality were consistent with the predictions of a market-clearing, neoclassical model linking land and labor endowments, through factor markets to household income. While the model is consistent with some features in the data, we reject the hypothesis that factor markets worked perfectly and find support for the historian's intuition regarding the disproportionate impact of land inequality in the countryside. Nevertheless, where markets were more active, especially land rental markets, excess returns to land were diminished and inequality was lowest. This suggests that factor market development played a positive role in reducing inequality in rural China.     

收入分配、医疗资源与人口健康:一个跨国研究

收入分配与人口健康的关系是一个争论已久的问题。本文在总结各种理论假说和以往实证研究的基础上,使用新的、质量较好的跨国面板数据,重新检验了收入分配与人口健康的关系。本文的分析重点有二:一是收入分配对人口健康的滞后影响;二是医疗资源在收入分配与人口健康的相关关系中所起的作用。本文的主要发现是,收入不均对人口健康的确有不利影响,但这种不利影响需要10年或更长的滞后期才能充分显现出来,这种滞后性是以往使用固定效应模型的跨国研究未能检测到收入不均与人口健康具有负相关关系的主要原因。此外,医疗资源(特别是初级医疗资源)人均拥有量对人口健康有积极作用;医疗资源有可能通过某种不可观察固定因素对收入分配与人口健康的关系发生影响。这些发现有助于澄清关于收入分配与人口健康关系的争论,对医疗政策也有重要参考价值。     

Trade in factor income and the US-China trade balance

US multindoational enterprises sell considerable amounts of products to China's domestic consumers that are “made” in either China or other countries. However, these sales are not counted as US exports to China. To account for this, we propose a beyond-borders approach to measuring trade flows that explicitly considers firm ownership, termed “trade in factor income (TiFI),” that defines the US-owned factor income induced by China's final demand as US exports to China. Applying this approach to OECD data, we find that on average from 2005 to 2016 in TiFI terms, US exports to China were 20.34% and 8.21% greater, China's exports to the US were 1.64% and 16.04% less, and the US trade deficits with China were 17.4% and 32.0% less than the trade figures reported in value added and gross terms, respectively. The concept of TiFI transforms trade measures from a territory-based “made in” label to a factor income-based “created by” label.