Urbanization, Urban-Biased Policies, and Urban-Rural Inequality in China, 1987-2001

Post-reform economic policies in China have been biased toward urban residents and have contributed to the increasing urban-rural inequality. Analysis of the provincial panel data during 1987-2001 shows that urbanization significantly narrowed the urban-rural inequality. We also find that interprovincial migration, economic opening, and governmental participation in economic activity are contributing to the expanding urban-rural inequality. The structure of governmental expenditure is also found to have significant effects on urban-rural inequality.