Globalization and Inequality: Evidence from within China

36 Pages Posted: 20 Dec 2001

See all articles by Shang-Jin Wei

Shang-Jin Wei

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Yi Wu

Georgetown University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 2001

Abstract

In this Paper, we provide a case study of the impact of globalization on income inequality using data across Chinese regions. The literature on cross-country studies has been criticized because differences in legal systems and other institutions across countries are difficult to control for, and the inequality data across countries may not be compatible. An in-depth case study of a particular country's experience can provide a useful complement to cross-country regressions. We construct a measure of urban-rural income ratio for 100 or so Chinese cities (urban areas and adjacent rural counties) over the period 1988-93. The central finding is that cities that experience a greater degree of openness in trade also tend to demonstrate a greater decline in urban-rural income inequality. Thus, globalization has helped to reduce, rather than increase, the urban-rural income inequality. This pattern in the data suggests that inferences based solely on China's national aggregate figures (overall openness and overall inequality) can be misleading. The negative association between openness and inequality holds up when we apply a geography-based instrumental variable approach to correct for possible endogeneity of a region's trade openness.

Keywords: Globalization, inequality, China

JEL Classification: F10, O10

Suggested Citation

Wei, Shang-Jin and Wu, Yi, Globalization and Inequality: Evidence from within China (December 2001). Available at SSRN: https://ssrn.com/abstract=294241

Shang-Jin Wei (Contact Author)

Columbia University - Columbia Business School, Finance ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Yi Wu

Georgetown University - Department of Economics ( email )

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