Transcript Growth, Reforms and Inequality: Comparing India and China

Lopamudra Banerjee (New School, New York),
Ashwini Deshpande (Delhi School of Economics),
Yan Ming (Chinese Academy of Social Sciences, Beijing),
Sanjay Ruparelia (New School, New York),
Vamsicharan Vakulabharanam (University of Hyderabad),
Wei Zhong (Chinese Academy of Social Sciences, Beijing).
Our estimates for India
 Based on three NSS large surveys: 1987-88, 1993-94
and 2004-05.
 Variable used: monthly per capita expenditure
(MPCE). Routinely used as a proxy for income, since
income figures are unreliable.
 Overall trend is of rising inequality (Gini), more in the
second period (93-94 to 04-05: 0.33 to 0.36)
Results contd….
 India: rural: mild decrease in the first period (0.3 to
0.29), mild increase in the second period to 0.3: overall
more or less unchanged.
 The aggregate Gini masks underlying changes.
 China: sharper rise over a shorter period (upto 2002)
0.29 to 0.38.
 Urban: India: 0.35 to 0.34 to 0.38
 China: 0.30 to 0.33
 Urban inequality in China is lower than rural.
Explanations……
 The agrarian sector in India has seen a deceleration in
the rate of growth -> stagnation.
 Slower rate of growth than total GDP: increase in
inequality
 Population in agriculture: 60%
 Share of agriculture in GDP: 15%
 High r.o.g. in sectors which have not created enough
employment (e.g. IT sector); bulk of increase in
employment in informal sector.
Explanations….
 Bulk of the Indian growth story is investment and
export driven.
 Consumption has kept pace with overall growth.
 However, growth in consumption is driven by the
demands of the upper middle class and the rich:
owners, managers, professionals: growth of luxury
consumption. Investment is responding to this
demand.
Explanations…..
 Inter-state variations: federalism argument:
liberalisation from above  “vertical competition”
(between states for resources from the centre) replaced
by “horizontal competition” (for private investment
and FDI): “provincial Darwinism” : not all states are
able to compete successfully. States like Bihar,
Jharkhand, Tripura and Sikkim have negative real
MPCE growth.
 Consumption of the urban middle classes: elite
consensus on creating world class urban spaces that
celebrate the culture of capitalism.
Decomposition of Inequality
Decomposition of
inequality in India
1987-88
1993-94
2004-05
Sector*
Proportion Proportion Proportion
Within
89.54
86.25
80.15
Between
10.46
13.75
19.85
Gini
0.33
0.33
0.36
* Sector: Rural vs. Urban
State
Within
Between
Gini
91.71
8.29
0.33
89.46
10.54
0.33
Region**
Within
98.44
97.29
Between
1.56
2.71
Gini
0.33
0.33
**Regions: North, East, West, South,
Northeast
85.96
14.04
0.36
96.12
3.88
0.36
China
Income
1988
Nationwide
803.9
Rural
582.4
Urban
1427.6
1995
1047.9
684.1
1932.9
2002
1732.0
1042.5
2804.3
Annual Growth Rate(88-95)
3.9
2.3
4.4
Annual Growth Rate(95-02)
7.4
6.2
5.5
1995
668.1
415.9
1281.3
2002
1094.0
609.0
1847.0
7.3
5.6
5.4
Consumption
1988
Annual Growth Rate(95-02)
China: Rural versus urban
Gini Coefficients in Each Year(based on current value)
Year
1988
1995
2002
Consumption
1988
1995
2002
Nationwide
0.369
0.453
0.450
Rural
0.319
0.388
0.375
Urban
0.233
0.332
0.350
0.424
0.465
0.299
0.376
0.303
0.331
Decomposition by R-U
Gini coefficient decomposed by Urban and Rural
Income
Within
1988
55.7
1995
56.3
2002
57.5
Between
Consumption
Within
Between
44.3
43.8
42.5
44.8
55.2
50.9
49.1
Decomposition by Regions
Gini coefficient decomposed by Three Regions
Income
1988
1995
2002
Within
Between
89.6
10.4
88.8
11.2
88.6
11.4
94.5
5.6
92.2
7.8
Consumption
Within
Between
China
 At the macro level, proportion of consumption in GDP




is declining.
Reason: share of wage income is declining, compared
to the share of profit income.
Urban-rural divide increases: TOT worsen
Rural-urban migration was expected to reduce gaps
but migrants concentrated at the lower end of the
urban labor market, so gaps do not lower.
Social exclusion related to labour market segregation:
hukou prevents economic and social mobility
China
 Employment growth in China has been in formal sector (as
compared to India), but has mainly been at the lower end.
 Regional differentiation: strongly related to the “open door
policy” adopted since the early 1990s. Marked increase in
coastal- inland inequality.
 Role of the state: introducing market-oriented reforms –>
initial increase in inequality; since 1990s: inequalities due
to power: access to power; abuse of power: corruption; state
monopolies.
 Low wage jobs: state preventing the emergence of collective
bargaining.
Social differentiation in China
 Private entrepreneurs: new and expanding group:
contributes a significant proportion to GDP,
provides employment.
 The poor: especially new urban poor, floating
population: low wages, lack of access to subsidized
public service and face social discrimination.
 Changing social composition of the power
structure of the political regime: increasing
political influence of the rich.
Comparisons
 Absolute levels and growth rates of income and
consumption in China much higher.
 Story of rising inequality in the post-reform period in
both countries: rise in China much sharper than in
India over a comparable period.
 Rural –urban gaps in China sharper.
 Rural-Urban decompositions: the “between”
component in China is much higher.
 Decomposition by region: “between” component in
China higher than in India.