Regional Inequality in Urban China, Allowing for Spatial Cost of Living Differences: Evidence from a Hedonic Analysis of Apartment Prices

Asia & the Pacific Policy Studies, Volume 6, Issue 2, pages 170-185 (2019)

Crawford School Research Paper Forthcoming

16 Pages Posted: 16 Jun 2019

See all articles by Chao Li

Chao Li

University of Waikato, Management School, Economics, Students

John Gibson

University of Waikato; Motu Economic and Public Policy Research

Geua Boe-Gibson

University of Waikato

Date Written: May 1, 2019

Abstract

Studies of inequality in China typically ignore cost of living differences between areas. Under the Balassa–Samuelson effect, nontradeables cost more in richer areas, so nominal inequality exceeds real inequality. This especially matters in China, where spatial cost of living differences should grow with recent development of urban housing markets. We use new data on apartment prices in 104 cities in China to develop housing‐related spatial deflators. The level of spatial inequality in urban China is overstated by 27% if cost of living differences are ignored. Our hedonic analysis of 41,000 individual apartment sales shows that most price variation is between areas, rather than from features of individual apartments. The dominant trend in the reform era is for regional inequality in China to decline, contrary to the common perceptions. In nominal terms, the Theil index for interprovincial inequality in 2016 is just 46% of its 1978 level. The current results imply that the fall in inequality in real terms would be even greater.

Keywords: China, housing, inequality, regional policy, spatial deflators

Suggested Citation

Li, Chao and Gibson, John and Boe-Gibson, Geua, Regional Inequality in Urban China, Allowing for Spatial Cost of Living Differences: Evidence from a Hedonic Analysis of Apartment Prices (May 1, 2019). Asia & the Pacific Policy Studies, Volume 6, Issue 2, pages 170-185 (2019); Crawford School Research Paper Forthcoming. Available at SSRN: https://ssrn.com/abstract=3402751

Chao Li

University of Waikato, Management School, Economics, Students ( email )

Hamilton
New Zealand

John Gibson (Contact Author)

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

Motu Economic and Public Policy Research

19 Milne Terrace
Island Bay
Wellington, 6002
New Zealand

Geua Boe-Gibson

University of Waikato

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

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