Did Higher Inequality Impede Growth in Rural China?

Authors


  •  Corresponding author: John Giles, Development Research Group, The World Bank, Mail-Stop MC 3-3111, 1818 H Street NW, Washington, DC 20433, USA. Email: jgiles@worldbank.org.

  • This is a completely rewritten version of the previous working papers, ‘Inequality and Growth in Rural China: Does Higher Inequality Impede Growth’ (University of Toronto Working Paper no. 237, June 2006; and Institute for the Study of Labour (IZA) Discussion Paper 2344, September 2006). We thank Gustavo Bobonis for helpful comments and the editor and referees for constructive suggestions for this revision. Benjamin and Brandt gratefully acknowledge the Social Sciences and Humanities Research Council of Canada for financial support and Giles acknowledges support from the National Science Foundation (SES-0214702).

Abstract

We estimate the relationship between village inequality and subsequent income growth for households in rural China. Using a longitudinal household-level survey spanning 1987–2002, we find that households from higher inequality villages experienced lower income growth. However, the effect of local inequality fades by 2002. Our evidence points to unobserved village institutions at the time of economic reforms, associated with household access to higher income activities, as the source of the link between inequality and growth. We address several econometric issues including measurement error and attrition, but underscore others that are probably intractable for all investigations of the inequality–growth relationship.

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