Abstract
This paper provides a quantitative analysis of how the changing dual economic structure and urbanization affect inequality in Asia. Focusing on data for four countries—the Peoples’ Republic of China, India, Indonesia, and the Philippines—the paper asks three questions. First, how much of the past increase in inequality can be attributed to urbanization per se—the rising share of urban population, as opposed to other drivers related to the region's dual economic structure, such as the urban–rural income gap, inequality within the urban sector, and inequality within the rural sector? Second, how might urbanization affect these countries’ inequality in the future as its process continues? Third, moving forward, what is the relative importance of each of these drivers in containing rising inequality in Asia? It is hoped that the framework developed and calculations presented in this paper provide more insights into the dynamics of rising inequality in Asia and can help policy makers prioritize policy actions for confronting it.
Highlights
This paper is motivated by three stylized facts for Asia over the last 2 decades
Given the three stylized facts and using data for four Asian countries—the People’s Republic of China (PRC), India, Indonesia, and the Philippines, we look at how the changing dual economic structure in Asia and urbanization have impacted the evolution of national inequality in the past and how the former might impact the latter in the future
Let us return to the three questions posed in this paper, in light of the basic stylized facts of inequality and urbanization in Asia
Summary
This paper is motivated by three stylized facts for Asia over the last 2 decades. First, inequality has risen significantly relative to historical trends. The evolution of inequality at the economy-wide or national level is a complex phenomenon, impacted by history, culture, technology, demography, and policy It is not our intention in this paper to provide a comprehensive explanation of inequality trends in Asia. Given the three stylized facts and using data for four Asian countries—the PRC, India, Indonesia, and the Philippines, we look at how the changing dual economic structure in Asia and urbanization have impacted the evolution of national inequality in the past and how the former might impact the latter in the future. Urbanization features strongly in the classic analysis of inequality and development by Kuznets (1955) In his seminal 1955 paper, Kuznets identifies a number of forces that together may lead to the well-known inverted U-shaped Kuznets curve—as a country develops, inequality increases initially and declines after a certain average income level is attained.
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