Income Disparity and Economic Growth: Evidence from People's Republic of China

Publication | October 2006

Using People’s Republic of China as a pilot field, results show that changes in income inequality carry adverse effects on gross domestic product and sectoral growth.

This pilot empirical study seeks to ascertain how income inequality affects growth by incorporating panel data information into a macroeconometric model. People's Republic of China is used as the pilot field. Provincial urban and rural household data are used to construct income inequality measures, which are then used to augment household consumption equations in a quarterly macroeconometric model. Model simulations are performed to study the inequality effect on gross domestic product growth and its sectoral components. Results show that income inequality forms robust explanatory variables of consumption and that the way inequality develops carries certain negative consequences on gross domestic product and sectoral growth.

Contents 

  • Abstract
  • Introduction
  • Background on Income Inequality in the PRC
  • Theories on Income Inequality → Growth Nexus
  • Method of Investigation and Inequality Measures
  • Econometric Model Results
  • Model Simulations
  • Conclusion
  • Appendix: Main Data Sources and Variable Definition

Additional Details

Authors
Type
Series
Subjects
  • Economics
  • Social development and protection
Countries
  • China, People's Republic of
ISSN
  • 1655-5252 (Print)

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