REGIONAL INCOME DISPARITY IN CHINA USING VALUE-ADDED DATA: DECOMPOSITION AND DISTRIBUTION DYNAMICS

Abstract

Using value-added data, we examine regional income disparity in China's provinces during the period 1987–2008. We decompose the Gross Regional Product (GRP) of China's provinces into four value-added components: compensation of employees, operating surplus, depreciation of fixed assets, and net tax on production. We measure income disparity by the coefficient of variation (CV) and measure the contribution of these four components to disparity in GRP. The disparity in operating surplus and net tax on production shows decreasing tendencies, while the disparity in compensation of employees and depreciation of fixed assets increases. The CV for all components is thus almost identical. In addition, compensation of employees contributes increasingly to disparity in GRP and replaces the operating surplus as the primary source of income disparity among China's provinces. These results have arisen through improvements among low-income, predominantly rural, workers, and higher-income workers employed by direct foreign investors or business owners.