Survey of Literature Related to Regional Disparity in the PRC

Many studies have examined the trends of change in inequality among the PRC's regions. Most of these studies found that regional disparity measured in terms of GDP per capita declined significantly from 1978 to 1990, the first stage of the PRC's reform and opening (Jian, Sachs, and Warner, 1996; Lin and Liu, 2003; Dayal-Gulati and Husain, 2000; Li, Feng, and Hou, 2004). Many of these studies recognized that the decline in regional disparity was due mainly to the character of the rural reform in this stage. The reform heavily promoted the growth of agricultural production, so the underdeveloped rural areas—which initially had per capita outputs lower than the national average—benefited highly from the reform.

However, a trend of continuous regional disparity has emerged since the 1990s (Wang and Fan, 2004; Kanbur and Zhang, 2005). This is mainly due to the increase of disparity between the coastal area and provinces in the inland. Wu (2004) studied the impact on regional disparity of three centrally administered municipalities: Beijing, Tianjin, and Shanghai. He discovered that regional disparity in the PRC is reduced greatly if the data of these three centrally administered municipalities are excluded. Due to the unique features of these three municipalities, it is meaningless to compare the data of these three municipalities with that of other provinces in the PRC. Therefore, incorrect results will be obtained if these three municipalities are studied together with other provinces. More recently, Xu and Li (2006) discovered that although the PRC's regional disparity has risen continuously since 1990, the rate of this increase has declined since the year 2000.

Some studies have found that the PRC's urban-rural disparities constitute the main part of the overall disparities. Using urban and rural household consumption data of 28 provinces exclusive of Beijing, Tianjin, and Shanghai between 1983 and 1995, Kanbur and Zhang (1999) found that urban-rural disparities accounted for 70% of the overall regional disparities. Yang and Zhou (1999) also provide some evidence of widening urban-rural income disparities. Some other studies have discovered that disparities between coastal and inland regions or among eastern, central, and western regions have been expanding rapidly since the PRC's reform and opening up. By decomposing the Gini coefficient, Yao and Zhang (2001) showed that the proportion accounted for by disparities among eastern, central, and western regions has risen to nearly 80% since 1990. Wang and Zhang (2006) adopted the Theil_L index decomposition technique and also discovered that disparities among eastern, central, and western regions have grown continuously and represented about 77% of the overall disparities in the PRC in 2001.

Since its reform and opening up, geographic, institutional, and some other factors have played important roles in changes of the PRC's regional disparities. Wang (2004) found that township and village enterprises (TVEs), education, and capital investment were among important factors determining income disparities in rural areas. Wang and Fan (2004) discovered that FDI, governmental transfer payment, and labor migration have affected the changing of the PRC's regional disparities. Peng (2005) examined the regional divergence of growth in the PRC from the perspective of sectors (such as agriculture, industry, construction, transport and post and other tertiary industries) from 1990 to 2002 and found large heterogeneity in productivity levels and movements across sectors and provinces. Decomposing aggregate divergence into within and between sector components revealed that the secondary and tertiary industrial sectors contributed to 87% of the total divergence. Kanbur and Zhang (2005) showed that regional disparities can be explained by three key policy variables: the ratio of heavy industry to gross output value, the degree of decentralization, and the degree of openness. Some other studies (Litwack and Qian, 1998; Young, 2000; Demurger, 2001; Demurger et al., 2002; Yang, 2002; Renard, 2002) have found that factors including the PRC's regional development strategies, preferential policies in favor of cities, SOE reform, fiscal decentralization, and public infrastructure all contribute to the expansion of regional disparities. Li, Feng, and Hou (2004) and Poncet (2005) also investigated the PRC's regional protectionism and market integration. Young (2000) showed that market segmentation has aggravated the growing trend of regional disparities because the lack of a uniform market has a weaker negative impact on coastal areas than on their inland counterparts.

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