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HomePublicationsThe Trend of Regional Income Disparity in the People’s Republic of ChinaRegional Income Disparity and Rural-Urban Income Gap

Regional Income Disparity and Rural-Urban Income Gap

The income gap between rural and urban areas is the main component of Chinese income inequity. This rural-urban gap has widened since 1994, and has exerted a significant influence on national income inequity. Using a data set that includes data of household consumption in 28 provinces of the PRC from 1983 to 1995. Kanbur and Zhang (1999) find that rural-urban disparities account for 70 percent of total regional gaps. Further, since the late 1990s, the PRC's urbanization rate has accelerated. From 1978 to 1995, the urbanization rate improved 0.65 percentage point annually on average; while during 1996 to 2005, urbanization rate grew at 1.4 percentage points annually. Additionally, the PRC's regulations on population migration from rural to urban areas have significantly relaxed recently, and this has resulted in a huge amount of rural labor moving to urban areas. All of these trends influence rural-urban gaps significantly.

G. Inter-provincial Rural-urban Income Disparity based on MMR

Figure 21 [ PDF 121.8KB | 1 page ] describes inter-provincial disparities in terms of MMR of urban and rural household income. The MMR of inter-provincial urban household disposable income has been very stable, and has stayed around 2.2. The MMR of inter-provincial rural household net income has not changed much, but its ratios were higher than urban ones.

The ratio of the highest urban disposable income to the lowest rural net income among the provinces was 4.5 in 1980 and reached 8.8 in 1994. Since then, the expansive trend of urban-rural income disparities has slowed somewhat, with the ratio of 9.9 in 2005. This high ratio shows that the income gap between rural and urban areas is significant.

H. Decomposition of inter-provincial disparity into rural-urban income gap

Figure 22 [ PDF 117.5KB | 1 page ] and Figure 23 [ PDF 117.5KB | 1 page ] illustrate how the Theil indexes of inter-provincial income disparities decomposed into gaps between rural and urban areas, between urban areas, and between rural areas. We divide each province into urban and rural areas and get 62 regions within the nation, with half of the areas rural and the other half urban. The Theil indexes are decomposed based on this classification. Figures 22 and 23 demonstrate the results based on per capita household consumption and household income, respectively. Both sets of results indicate the following characteristics of rural-urban disparity:

The results of the decomposition indicate that the inter-urban areas income disparity based on the level of household consumption increased relatively faster, but its share in total disparity is still very small. In 1984, the Theil index of the level of household consumption among urban areas is only 0.002. This reflects that the disparity of consumption among urban was small by that time. This index grew to 0.017 in 2005, which is 7 times the value in 1984, but the disparity of consumption level of urban areas accounts for only 7% of the total value of disparity. Similarly, the Theil index of household income among urban areas grew from 0.002 in 1984 to 0.014 in 2005; its share of total disparity increased from 4.5% to 6.3% (Figure 22).

There was also an increase in regional disparity to some extent among the rural areas. Like the disparity among urban areas, this inter-rural disparity also has a relatively small share of total disparity. The Theil index of the level of consumption among rural areas increased from 0.017 in 1984 to 0.026 in 2005, but its share in total disparity decreased from 21.4% to 11.1% in the same period. The Theil index of household income disparity among rural areas increased from 0.017 to 0.029 in the same period, and its share of total disparity decreased greatly from 38.8% to 13.3%.

Both the absolute values and the share to total disparity indicate that the increase of disparity between the urban and rural areas is very significant. The increase of total disparity is mainly due to the increase of disparity between the urban and rural areas. The disparity of the level of consumption between the urban and rural areas has a share of total disparity around 75.6% to 81.9% from 1984 to 2005. The Theil index of household income disparity between the urban and rural areas increased from 0.025 to 0.173 in the same period, which accounts for 86.6% of the net amount of increase of total income disparity; the share in total disparity also increased from 56.7% to 80.4%.

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