Economic reform and interprovincial inequalities in China

Abstract

This note is an attempt to explore two issues: (1) the trend of interprovincial inequality in the post-1978 reform era in China; and (2) the factors behind the dynamics of interprovincial inequality. Using recently released provincial gross domestic product (GDP) data, we have shown that interprovincial inequality decreased in the fast half of the 1980s, but started to increase in the second half of the 1980s. To understand the impact of sectoral reforms on interprovincial inequality, the overall inequality in provincial per capita GDP is decomposed into the contributions by the primary, secondary and tertiary sectors. It seems that the trend of interprovincial inequality has been largely induced by the reforms of the industrial sector which make up a large share of the secondary sector. In addition, national income data from the socialist national accounting system are used to identify the impact of interprovincial resource flows on interprovincial inequalities. The findings seem to suggest a relative decline in the role of redistributive budgetary transfers.