Positional goods and the challenge of Chinese regional inequality

Abstract

Scholars have focussed on income inequality as a major source of social instability. But the focus on crude income inequality has masked the deeper developmental problem facing many fast-growing economies. China is an extreme case of this issue inasmuch as its coastal regions can be viewed as comparable to middle income states, while the greater part of its rural and western areas would be comparable to the poorer nations of the world. That means that the new middle class pays attention to issues such as pollution and status or positional goods than simple material goods. Construction costs of houses are in particular less than location. Other status goods are similar because they are not amenable to simple productivity improvement. This will make policies more difficult as conflict increases between those areas who are still eager for basic economic development and those richer areas whose wants and needs start to more closely resemble the preferences of richer developed countries.