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ECON 336 Naughton - Chapter 9.docx

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McGill University
Economics (Arts)
ECON 336
Christopher Green

Chapter 9: Living Standards, Inequality and Poverty  Since the reform, Chinese society has become much better off, much less poor, but much more unequal (less fair than it used to and should be)  Distinctive feature of the Chinese economy: urban-rural divide, peculiarities in the nature of income, and changes in the composition of household income over the reform period -> makes data hard to collect and interpret Income Growth  Undisputed rapid growth in household income  Source of information: large household surveys carried out annually  Both rural and urban income more than quadrupled between 1978 and 2004 o Between 1991 and 2004: urban income grew at 7.7% urban income which grew at 4.9% o 1985-1991: urban growth rate 4.8% and rural growth rate 2.8%  Rural urban gap widening for about 20 years o 1978-1985: rural growth at 15% (due to rural reforms) and urban growth rate at 7.7% o Limitations of data: o Based on poor calculation of the rural consumer price index o Surveys only cover rural residents and urban people with residence permits, so migrants and others are not included o There are also differences between urban and rural in the way income is measure, as well as difference over time in how in-kind incomes are evaluates o Overstates growth rates in early period and limit comparability Poverty Rural Poverty  One of the great success of China’s economic reform has been a dramatic reduction in the number of people living in poverty  Official poverty line: 250 million rural poor in 1978 to 26 million in 2004 o Most rapid decline before 1985 o 2004: only 2.8% of rural population in poverty and zero urban poverty (rural phenomenon)  Problem: Chinese official poverty of 627RMB is very low (compared to world bank standard of about 850RMB) o With the World Bank standard, total number of poor in 2002 jumps to 114 million, and 3.2% of population o Household falling between Chinese and World Bank line are likely suffering from chronic malnutrition o Also, given greater economic insecurity and reduced access to health care, the poor are more vulnerable o The new calculations show that after the mid-1980s, poverty alleviation has stalled and the poverty actually increased until 1991. Between 1993 and 1996: rapid progress. Since 1996, progress has been much slower and progress more limited  According to this standard, the total number of people escaping poverty is actually greater than Chinese measures (about 400million), but the process appears less smooth  Spectacular declines can be attributed one-time factors in the early 1980s: o Rise of procurement agricultural prices, increase supply of modern input for farmers, and the dissolution of collectives which allowed farmers to work harder and allocate inputs into agriculture more efficiently o Also, land distribution occurred on an egalitarian basis, and periodically redistributed -> few landless laborers  After the 1980s, poverty alleviation became more difficult o Establishment of the Leading Group for Poverty Reduction in 1986, directly under the State council to identify and deliver assistance to impoverished counties o Contributed to about 1% economic growth annually  Second dramatic reduction during 1993-1996 thanks for broad economic forces o Agricultural terms of trade improved, procurement prices raised and government began to provide support prices for farmers o Non-farm rural employment and migration  Slow growth after 1996 o Concentration of growth in coastal areas, while remote areas suffered environmental degradation o Market liberalization caused farm prices to fall o Reduction in employment in urban enterprises o Inadequate provision of fiscal resources to poor region o Restriction on migration o Despite efforts like the Western Development Program, forces limit the trickle down impact Urban Poverty  Even using World Bank standard, urban poverty is around 0.5% in 2002  However, no longer guarantee lifetime employment in urban areas and eroding benefits  Also, statistics don’t include migrant workers Overall Poverty:  World Bank standard: 8% of total population in poverty in 2001 Inequality  Under socialist economy, Chinese society was dualistic (gap existed between urban and rural areas) but egalitarian within urban/rural sectors  1983: 0.28 Gini coefficient -> one of the most equal countries in the world (immediately after the reform, the urban/rural divide was narrowed) o Unusual for large countries, which tend to have high Gini coefficients because of variation in land endowments  Since then, inequality has increased steadily and inexorably o By 2001: 0.0447 (unprecedented case wh
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