Did Higher Inequality Impede Growth in Rural China?

43 Pages Posted: 20 Apr 2016

See all articles by Dwayne Benjamin

Dwayne Benjamin

University of Toronto

Loren Brandt

University of Toronto - Department of Economics; IZA Institute of Labor Economics

John Giles

World Bank; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)

Date Written: November 1, 2010

Abstract

This paper estimates the relationship between initial village inequality and subsequent household income growth for a large sample of households in rural China. Using a rich longitudinal survey spanning the years 1987-2002, and controlling for an array of household and village characteristics, the paper finds that households located in higher inequality villages experienced significantly lower income growth through the 1990s. However, local inequality?s predictive power and effects are significantly diminished by the end of the sample. The paper exploits several advantages of the household-level data to explore hypotheses that shed light on the channels by which inequality affects growth. Biases due to aggregation and heterogeneity of returns to own-resources, previously suggested as candidate explanations for the relationship, are both ruled out. Instead, the evidence points to unobserved village institutions at the time of economic reforms that were associated with household access to higher income activities as the source of the link between inequality and growth. The empirical analysis addresses a number of pertinent econometric issues including measurement error and attrition, but underscores others that are likely to be intractable for all investigations of the inequality-growth relationship.

Keywords: Access to Finance, Inequality, Rural Poverty Reduction, Poverty Impact Evaluation, Services & Transfers to Poor

Suggested Citation

Benjamin, Dwayne and Brandt, Loren and Giles, John, Did Higher Inequality Impede Growth in Rural China? (November 1, 2010). World Bank Policy Research Working Paper No. 5483, Available at SSRN: https://ssrn.com/abstract=1711686

Dwayne Benjamin (Contact Author)

University of Toronto ( email )

105 St. George Street
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Loren Brandt

University of Toronto - Department of Economics ( email )

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Toronto, Ontario M5S 3G7
Canada
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416-978-6713 (Fax)

IZA Institute of Labor Economics ( email )

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John Giles

World Bank ( email )

Washington DC
United States

IZA Institute of Labor Economics

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Germany

World Bank - Development Research Group (DECRG)

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