Two Sides of the Same Coin? Rebalancing and Inclusive Growth in China

 
Author/Editor: Il Houng Lee ; Murtaza H. Syed ; Xin Wang
 
Publication Date: August 27, 2013
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: This paper uses the Shapley Value decomposition technique to assess the factors behind the rise of inequality in China. It finds that, in many ways, inequality may have been an inevitable by-product of China’s investment and export-led growth model. Between Chinese households, we find that the most important factors explaining income inequality are location, education, access to health insurance, and labor market variables, including the sector of employment and enterprise size. Across China’s provinces, divergences in per capita incomes are driven by the relative level of capital-intensity, public spending, financial access, privatization, and urbanization. In addition, excess liquidity may have exacerbated inequality in the last decade, by driving up property prices and the wealth gap. Based on these results, policies that could help broaden the benefits of growth in China include maintaining prudent monetary and credit policies, a more progressive fiscal tax and expenditure system, higher public spending on health and education, deregulation and reforms to increase competition, measures to raise labor incomes and assist vulnerable workers, and better access to finance for both households and SMEs, including in rural areas. Not surprisingly, given the argued nexus between China’s growth strategy and inequality, many of these reforms are the same ones that would help rebalance its economy toward consumption and household incomes.
 
Series: Working Paper No. 13/185
Subject(s): Economic growth | China | Economic reforms | Income distribution | Poverty | Excess liquidity | Monetary policy | Economic models

 
English
Publication Date: August 27, 2013
ISBN/ISSN: 9781484386576/2227-8885 Format: Paper
Stock No: WPIEA2013185 Pages: 24
Price:
US$18.00 (Academic Rate:
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