The Evolution of Income Inequality in Rural China

Posted: 10 Mar 2004

See all articles by Dwayne Benjamin

Dwayne Benjamin

University of Toronto

Loren Brandt

University of Toronto - Department of Economics; IZA Institute of Labor Economics

John Giles

World Bank; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)


We document the evolution of the income distribution in rural China, from 1987 through 1999, with an emphasis on investigating increases in inequality associated with transition and economic development. With a backdrop of perceived improvements in average living standards, we ask whether increases of inequality may have offset, or even threaten welfare gains associated with economic reforms. The centerpiece of the paper is an empirical analysis based on a set of household surveys conducted by the China's Research Center for Rural Economy (RCRE) in Beijing. These surveys permit us to construct a set of comparable estimates of household income and consumption from a panel of over 100 villages from nine Chinese provinces. We provide a variety of summary statistics, including Gini coefficients, as well as more nonparametric summaries of the income distribution (i.e., Lorenz curves). In addition, we decompose the sources of inequality, exploring the contributions of spatial inequality to overall inequality, and the role of non-agricultural incomes in explaining rising dispersion of incomes. We find that the distribution of income improved by most measures during the early part of the period, as average incomes rose substantially with only a modest increase in inequality. However, the distribution has worsened significantly since 1995, with rising inequality, and falling absolute incomes, especially at the bottom end of the income distribution. We attribute most of the recent decline in welfare to collapsing agricultural incomes, probably brought about by lower farm prices. At the same time, increasing non-farm incomes have widened the gaps between those with and without access to nonagricultural opportunities. Based on explorations with different data sets, our RCRE-based results probably understate the divergence due to non-agricultural income growth and the increase in inequality over time. Our results highlight the need for further evaluation of the role of farming as a source of income in the countryside, and also underline the limitations of a land-based (and essentially grain-based) income support and redistribution mechanisms.

Keywords: Rural inequality, China, welfare and transition, poverty, farm incomes

JEL Classification: P36, D3, O15

Suggested Citation

Benjamin, Dwayne and Brandt, Loren and Giles, John, The Evolution of Income Inequality in Rural China. Economic Development and Cultural Change, Vol. 53, No. 4, pp. 769-824, July 2005, William Davidson Institute Working Paper No. 654, Available at SSRN:

Dwayne Benjamin (Contact Author)

University of Toronto ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
416-978-6130 (Phone)
416-978-6713 (Fax)

Loren Brandt

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
416-978-4442 (Phone)
416-978-6713 (Fax)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072

John Giles

World Bank ( email )

Washington DC
United States

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
Washington, DC 20433
United States

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