Income Polarization in the People’s Republic of China: Trends and Changes

29 Pages Posted: 25 Sep 2015

See all articles by Guanghua Wan

Guanghua Wan

Asian Development Bank Institute

Chen Wang

Shanghai University of Finance and Economics

Date Written: July 2015

Abstract

This paper estimates income polarization in the People’s Republic of China (PRC) from 1978 to 2010 and decomposes the estimated polarization by population subgroup. In addition, a framework is proposed to disentangle a change in polarization into a growth and a redistribution component. This framework is then used to quantify the contributions of various income sources to a rise in polarization in the PRC between 2002 and 2007. The analytical results suggest that (1) income polarization exhibited a broadly increasing trend from 1978 to 2010; (2) income polarization was large and rising among rural citizens, while low and declining among urban citizens; polarization of migrants also declined; (3) geographically, income polarization rose in east and particularly central PRC, while west PRC was most polarized with little change over time; and (4) the rise in polarization between 2002 and 2007 was mainly driven by the investment income, followed by transfers. Conversely, business income is polarization-reducing, especially in rural PRC. To a lesser extent, wage is also polarization-reducing, especially among migrants.

Keywords: polarization decomposition, alienation, identification, income distribution, PRC

JEL Classification: D31, D63, D74, O53

Suggested Citation

Wan, Guanghua and Wang, Chen, Income Polarization in the People’s Republic of China: Trends and Changes (July 2015). ADBI Working Paper 538, Available at SSRN: https://ssrn.com/abstract=2654598 or http://dx.doi.org/10.2139/ssrn.2654598

Guanghua Wan (Contact Author)

Asian Development Bank Institute ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Chen Wang

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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