The Trend of the Chinese Gini Coefficient

Abstract

The literature shows that the main problem with calculating the Gini coefficient of Chinese residents’ incomes is the limitations of the data source. Though many studies have tried to overcome the limitations by decomposing the nationwide Gini coefficient into urban and rural areas, the final results were underestimated due to the overlap term or residual in the decomposition. This paper analyzes the effects of the overlap term on calculating the overall Gini coefficient through the statistical approach, and estimates the Chinese Gini coefficients since the economic reform and open door policies have been adopted. By decomposing the Chinese Gini coefficient from 1978 to 2006, the authors find that the key factor in income inequality is the income disparity between rural and urban inhabitants. Moreover, the authors investigate the features of the income inequality between rural and urban areas. Furthermore, statistical approaches are employed to evaluate the effects of the development of urbanization and the rural to urban average income on the income inequality of the whole nation. The results show that accelerating the pace of urbanization is the key to improving the Chinese income disparity. On the basis of the above analysis, the paper proposes related policies for policy-makers.