Rural Industrialization and Increasing Inequality: Emerging Patterns in China′s Reforming Economy

This paper′s goal is to increase the understanding of the inequality trends during the postreform period in China. It uses a rigorous, inference-based procedure to demonstrate that inequality among the counties in an east coast province registered statistically significant increases between 1984 and 1989. Decomposition analysis reveals that the changing patterns of inequality were closely associated with the changes in the structure of the rural economy. In particular, policies that increased the importance of agriculture in the economy led to a reduction in inequality; those that stimulated the expansion of rural industry gave rise to greater inequality. One explanation is that barriers keep outputs, inputs, and information from flowing among regions, leading to higher inequality. J. Comp. Econom., December 1994, 19(3), pp. 362-391. Food Research Institute, Stanford University, Stanford, California 94305-6084.