China's Lagging Poor Areas

Abstract

Casual observations and the best data available indicate remarkable geographic differences in levels of living within China. What creates China's poor areas? Are they catching up? What should governments do? The paper provides an overview of recent research addressing these questions. There is evidence of sizable negative externalities to households of living in a poor area. Location matters greatly to growth prospects at the farm household level independently of (observed and unobserved) household characteristics. Geographic poverty traps are common. There also appears to be a high degree of transient poverty associated with poorly developed risk markets. The paper argues that poor-area programs make sense in China, given that where you live constrains prospects of escaping poverty, including by out-migration. However, such programs alone are unlikely to solve China's poverty problem. A comprehensive strategy for doing so will also help protect poor people from the risks they face, and should not neglect poor people in non-poor areas.

JEL Classification: O53