Progress: Research on Poverty & Inequality in China

Backgrounders:

http://delong.typepad.com/sdj/2005/07/poverty_reducti.html

http://simonworld.mu.nu/archives/099995.php

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=625285

 

Ravallion and Chen 2005 have worked with the National Bureau of Statistics in the PRC and carefully compiled a dataset to examine “China’s (Uneven) Progress Against Poverty.” The dataset covers 1980 to 2001. First, I find their data and comfort with the details of the data exciting. Second, I find that there are a number of bloggers who are writing and clearly interested in data close to my own dissertation project heartening. Third, I do not know if I buy the findings, from their pp 3-4, because of the fact that they miss migrants (see 4 below) and they are so counter-intuitive:

 

Finding 1: China has made huge overall progress against poverty, but it has been uneven progress. In the 20 year period after 1981, the proportion of the population living below our new poverty lines fell from 53% to 8%. However, there were many setbacks for the poor. Poverty reduction stalled in the late 1980s and early 1990s, recovered pace in the mid-1990s, but stalled again in the late 1990s. Half of the decline in poverty came in the first few years of the 1980s. Some provinces saw far more rapid progress against poverty than others.

 

Finding 2: Inequality has been rising, though not continuously and more so in some periods and provinces. In marked contrast to most developing countries, relative inequality is higher in China‘s rural areas than in urban areas. However, there has been convergence over time with a steeper increase in inequality in urban areas. Relative inequality between urban and rural areas has not shown a trend increase once one allows for the higher rate of increase in the urban cost of living. Absolute inequality has increased appreciably over time between and within both urban and rural areas, and absolute inequality is higher in urban areas.

 

Finding 3: The pattern of growth matters. While migration to urban areas has helped reduce poverty nationally, the bulk of the reduction in poverty came from within rural areas. Growth in the primary sector (primarily agriculture) did more to reduce poverty and inequality than either the secondary or tertiary sectors. Starting in 1981, if the same aggregate growth rate had been balanced across sectors, it would have taken 10 years to bring the poverty rate down to 8%, rather than 20 years. The geographic composition of growth also mattered. While provinces with higher rural income growth tended to have higher poverty reduction, growth did not tend to be higher in the provinces where it would have had the most impact on poverty nationally. The pattern of growth mattered to the evolution of overall inequality. Rural and (in particular) agricultural growth brought inequality down. Rural economic growth reduced inequality in both urban and rural areas, as well as between them.

 

Finding 4: Inequality has emerged as a concern for both growth and poverty reduction. With the same growth rate and no rise in inequality in rural areas alone, the number of poor in China would be less than one-quarter of its actual value (a poverty rate in 2001 of 1.5% rather than 8%). This calculation would be deceptive if the rise in inequality was the “price” of high economic growth, which did help reduce poverty. However, we find no evidence of such an aggregate trade off. The periods of more rapid growth did not bring more rapid increases in inequality. Nor did provinces with more rapid rural income growth experience a steeper increase in inequality. Thus the provinces that saw a more rapid rise in inequality saw less progress against poverty, not more. Over time, poverty has also become far more responsive to the (continuing) increase in inequality. At the outset of China‘s current transition period, levels of poverty were so high that inequality was not an important concern. That has changed. Furthermore, even without a further rise in inequality, the historical evidence suggests that more unequal provinces will face a double handicap in future poverty reduction; they will have lower growth and poverty will respond less to that growth.

 

Fourth, I am frustrated by the fact that they, and thus it seems the NBS, does not have statistics on migrant workers, who in many ways are the most interesting cases. In pointing this fault out, Ravallion and Chen make the following correct statements (pp 4-5):

 

An unusual feature of these surveys is that their sample frames are based on China‘s registration system rather than the population census. This means that someone with rural registration who has moved to an urban area is effectively missing from the sample frame. Migrants from rural areas gain from higher earnings (the remittances back home are captured in the RHS), but are probably poorer on average than registered urban residents. Against this likely source of downward bias in poverty estimates from the UHS, the UHS income aggregates do not capture fully the value of the various entitlements and subsidies received exclusively by urban residents, though these appear to be of declining importance over time.

However, without knowing the wages and living conditions of these migrants, it is difficult to understand inequality and especially redistributive policies in the nation. Let it be clear that there is nothing small when discussing migrants. The usual number bandied about is 100 million or more individuals that have moved to urban areas without registration and thus are left out of the sample. The authors have data on the size of remittances which would be absolutely wonderful to take a look at. Subsequent questions such as how are remittances taxed (clearly if they are counted by the NBS someone must have their hands on the money) and what rights non-registered workers have in the localities where they work. By including remittances they decrease their estimates of rural poverty but we just do not know how migrants are living and how policies are affecting them.

 
Fifth, they argue that their data do not seem to support any effect of trade policies on poverty reduction. Although I have not seen the data, the measure that they use for trade volume already includes GDP (the ratio of exports and imports to GDP) rather than simply the total exports plus imports. The growth in China has certainly been related to exports, the fact that there are differences in wealth related to distance to port and coast should make this clear. Yet the fact that they present (the makeup of the economy as more or less trade dependent is not correlated to poverty reduction) is certainly provocative and worthy of more study.

 In sum, this paper requires close reading and access to their data will be critical for my own research. However, like many works on the Chinese economy, I find there only glancing interest in policy questions odd. Odd in the way an economist might feel walking along a sidewalk and seeing a $100 bill. I plan and am excited about picking up what others have left. My explanation is institutional: so much of the economic research on China comes from development banks that are not interested in politics, as much as poverty alleviation and are frustrated by politics, just as the African agricultural economists were prior to Bates 1981.

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