Review of Income and Wealth Series 53, Number 1, March 2007
GLOBALIZATION AND REGIONAL INCOME INEQUALITY:EMPIRICAL EVIDENCE FROM WITHIN CHINA
By Guanghua Wan*
United Nations University–World Institute for Development Economics Research, Finland
MingLu and Zhao Chen
Fudan University, China
China’s recent accession to the WTO is expected to accelerate its integration into the world economy, which aggravates concerns over the impact of globalization on the already rising inter-region income inequality in China. This paper discusses China’s globalization process and estimates an income generating function, incorporating trade and FDI variables. It then applies the newly developed Shapley value decomposition technique to quantify the contributions of globalization, along with other variables, to regional inequality. It is found that: (a) globalization constitutes a positive and substantial share of regional inequality and the share rises over time; (b) domestic capital, however, emerges as the largest contributor to regional inequality; (c) economic reform characterized by privatization exerts an increasingly significant impact on regional inequality; and (d) the relative contributions of education, location, urbanization and dependency ratio to regional inequality have been declining.
1. Introduction
The debate over globalization is lively, often passionate, and has sometimes been violent. (Stanley Fischer, 2003, p. 2)
How globalization affects inequality is under heated debate (Fischer, 2003, p. 5). Stiglitz (1998) and Hurrell and Woods (2000), among others, argue that globalization leads to increases in inequality because trade increases differentials in returns to education and skills, globalization marginalizes certain groups of people or geographic regions, and liberalization is not complemented by development of adequate institutions and governance. This view is supported by evidence from China and some transitional economies that are experiencing significant increases in inequality after their opening up to the outside world (Birdsall, 1999; Mazur, 2000). In developed countries, rising inequalities are being attributed to trade growth or international specialization as well (Atkinson, 2001). On the contrary, Srinivasan and Bhagwati (1999) and Ben-David (1993) conclude that globalization helps to reduce inequality. This is also supported by evidence from a number of countries where inequality decreased when they liberalized their economies (Wade, 2001). In between these two opposing views, Sala-i-Martin (2002a, 2002b) and Lindert and Williamson (2001) find that a significant globalization–inequality relationship does not exist. Krugman and Venables (1995) deduce a U-shaped pattern between inequality and trade (p. 859).
Note: This study was prepared for the UNU-WIDER project on Inequality and Poverty in China, directed by Guanghua Wan. We are grateful to Tony Shorrocks, two anonymous referees of this journal, Stephan Klasen, Eric Thorbecke and Machiko Nissanke for helpful comments on earlier drafts of the paper. Financial support from the Chinese Natural Sciences Foundation (No. 70403004), and the China Center for Economic Studies of Fudan University are acknowledged.
*Correspondence to: Guanghua Wan, World Institute for Development Economics Research, United Nations University, Katajanokanlaituri 6 B, Helsinki, Finland 00160 (wan@wider.unu.edu).
© 2007 The AuthorsJournal compilation © 2007 International Association for Research in Income and Wealth Publishedby Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden,MA, 02148, USA.
