Structural Changes and Income Inequality in China, 2000–2017: A Bi-Dimensional Inequality Decomposition Analysis

Abstract

The paper explores the changes in the determinants of interprovincial inequality in China during the period of 2000 to 2017 by way of bi-dimensional decomposition method. The method integrates two inequality decompositions by both regional groups and gross regional product components, helping us to evaluate the contributions of gross regional product components to both within-region and between-region inequalities, and to overall interprovincial inequality. It is found that the overall inequality exhibited a declining trend and the “Western Development Strategy” in Region 3 during the second sub-period from 2005 to 2012 contributed mostly to the decrease in interprovincial inequality. Moreover, as 57.3 percent of the interprovincial inequality is accounted for by the between-region inequality component, more preferential policies in terms of tax deduction, transfer payments, foreign trade promotion and the like should be issued to the less developed interior provinces in Region 2 and Region 3.