Indexes Measuring Regional Income

Many indicators can reflect regional income. The following three are usually adopted to measure the PRC’s regional disparities.

(1)Per capita GDP. Per capita GDP is the most frequently used index. It reflects one region’s production capacity, income, and economic development level. Compared with other indexes, statistics on per capita GDP are relatively complete and perfect.¹ However, this index alone cannot fully capture the welfare enjoyed by people in one region because this welfare is directly determined by a combination of many other factors including household incomes, regional prices, and public services. Although household incomes are closely related to per capita GDP, the two are not completely consistent due to transfers of factor incomes and transfer payments among regions.

(2) Per capita consumption (household consumption level). Compared with per capita GDP, per capita consumption can better reflect household living conditions. GDP expenditure is composed of capital formation, consumption, and net export, while consumption can be further decomposed into governmental and household consumption. The shares of capital formation, consumption, and net export may be different in different regions, and so are proportions of government and household consumption. For example, all provinces in the western region have net inflows while most provinces in the eastern region (except Beijing) have net outflows because there are some transfer payments between the central government and provincial governments, and the existence of large transfer payments from more developed to less developed regions. Therefore, household consumption level is the most direct measurement of household living standards.

(3) Household income. Household income is the main determinant of household living standards and quality of life. This index can directly reflect the welfare enjoyed by households. In the PRC, household income is measured by urban per capita disposable income and rural per capita net income. The data of household income directly come from household survey statistics produced by survey teams of the National Bureau of Statistics.

Per capita GDP, household income, and per capita consumption reflect regional income level and household welfare level in different ways, so regional disparities based on calculations of these three indexes are somewhat different. There are great differences in consumption rates among different regions. For example, the per capita GDP of Zhejiang (27,703 yuan) was 5.48 times that of Guizhou (5,052 yuan) in 2005, while the share of household consumption in GDP was 35% for Zhejiang and 62.1% for Guizhou (see Figure 1 [ PDF 134.4KB | 1 page ]). The household consumption level of Zhejiang was 3.09 times that of Guizhou, indicating that the regional disparity measured by consumption per capita is significantly less than that measured by per capita GDP. On the whole, the household consumption rate in the more developed eastern regions (an average of 33.2% in 2005) is relatively low while the index is relatively high in other regions (an average of 40.4% in 2005). Therefore, it can be safely concluded that regional disparity based on per capita consumption is less than that based on per capita GDP.

There is also some difference between regional disparities measured by household income and those by household consumption per capita. Calculations using the latter can produce lower results than the former because of the low marginal propensity to consume for households with higher incomes. However, there is some variation between local household consumption level and actual consumption level in large cities like Beijing and Shanghai because statistics on the PRC’s household consumption per capita come from the national income account, which reflects households’ purchases of goods and services. In these large cities, purchases made by citizens from other regions account for a considerable proportion of total retail sales of consumer goods and services.

Because there are some differences among results calculated using the three indexes, an integrated analysis should be conducted to include all these indexes and reflect regional disparities in a comprehensive manner. However, due to limitations in the data availability, we have chosen to use per capita GDP, household income, and household consumption per capita for measuring regional disparities at the provincial level, and use only per capita GDP for the prefecture and county levels.

Download this Discussion Paper [ PDF 1.2MB| 43 pages ].

Comment(s)

There are [0] comment(s) for this entry. Post a comment.