Infant Mortality Rate in 2005
Xinjiang
Inner MongoliaJilin
Heilongjiang
j g
Qinghai
GansuHebei
Shaanxi
Shanxi
Liaoning
ShandongNingxia
BeijingTianjin
TibetSichuan Hubei
Hunan
Anhui
JiangxiGuizhou
Jiangsu
Zhejiang
Shanghai73/10003/1000
Taiwan
MacauHong Kong
Yunnan Guangxi
Fujian
Guangdong
Hainan
Infant Mortality Rate< 5.05.1 - 10.010 1 - 15 0 a a10.1 - 15.015.1 - 30.0> 30.0Not Included
Urban/Rural IMR = 2.2Inland/Coast IMR = 2.1
How have regional disparities in their differentdimensions evolved since the revolution?dimensions evolved since the revolution?
40
Gini
30
35
20
25
10
15 Outcome (per capita consumption at the provincial level In six decades) in three dimensions:
O ll
0
5
1950 1960 1970 1980 1990 2000 2010
OverallRural-Urban (RU)Inland-Coastal (IC)
1950 1960 1970 1980 1990 2000 2010
Rural-Urban and Inland-Coastal Inequalityq y4
14
16
312
14
28
10
Rural-urban
Inland-coast
14
6
Inland coast
2
001950 1960 1970 1980 1990 2000 2010
Why No Convergence?I id l ld if i i t t d f t• In an ideal world, if assuming integrated factor markets and full factor movement (no frictions), market forces will equalize marginal returns tomarket forces will equalize marginal returns to factor inputs, leading to convergence across regions and sectors. g
• Development strategies and economic policies p g pmatter to the observed spatial inequality.
Walk Through History: g yChina’s Development Strategy
• Heavy industry-led development strategy in the 1950s
Vi l d Chi ’ i d h i– Violated China’s comparative advantage at the time that capital was scarce and labor was abundant.
– Formed Hukou (Household registration system) and ( g y )create rural-urban gap
B h l 1970 Chi h d i d h• By the late 1970s, China had experienced the Great Famine and Cultural Revolution and its economy was at the verge of collapse.economy was at the verge of collapse.
Rural ReformRural Reform
• Abolished the inefficient collective farmingAbolished the inefficient collective farming
l h h ld ibili• Rural household responsibility system –grant farmers land user rights and allow h k h i d ithemto make their own production
decisions.
Rural-urban Disparity and HIDSp y
d/ iGreat Leap Forward/Great Famine
14.0
16.060
Cultural Revolution 66-76
10.0
12.0
40
50
6.0
8.0
20
30HID
ru
2.0
4.0
10
20
Rural reform0.00
1950 1960 1970 1980 1990 2000 2010
O UOpen Up
• In the late 1970s, China set up 14 special economic zones in the coast. Allow some people (regions) to get rich first(regions) to get rich first.
• Cheap labor and land + abundant capital from• Cheap labor and land + abundant capital from overseas made the coastal area a growth engine in the 1980s.
2. Shanghai
Page 111. Shenzhen
Inland-Coastal Disparity and Opennessp y p
3.580
Planning era Reform era
3.0
60
70
2.0
2.5
40
50
60
T d ti
Openness
1.0
1.5
20
30
40 Trade ratio
Inland-coastal disparity
0.510
20
0.001950 1960 1970 1980 1990 2000 2010
Decentrali ationDecentralization
• Expenditures tie more closely to revenue.
• Local government officials’ promotion is based on their performance in economic growth and revenue growthrevenue growth.
• Horizontal inter-judiciary competition serves as a• Horizontal inter-judiciary competition serves as a commitment device for local governments to create more favorable investment environment.
Regional Inequality and Decentralizationg q y
40.090
30.0
35.0
70
80
20.0
25.0
50
60
Decentralization
10 0
15.030
40 Gini
5.0
10.0
10
20
0.001950 1960 1970 1980 1990 2000 2010
Go West Strategy
• Started in 1999.
• Massive infrastructure investment in the west.
• Set up Chongqing as a province-level city, enjoying the same status as Shanghai and Beijing .
Other Regional Strategies
• “Rising Central”
• “Reinvigorating Northeast”
• Setting up a new economic zone in Tianjin.
4. Tianjin
3. Chongqing2. Shanghai
Page 171. Shenzhen
New Socialism Countryside
• Abolished agricultural taxation
• Provided direct grain subsidies to farmers
• Waived tuitions of nine-year basic education in vast rural areas
• Increased public investment in rural areas•• ……
Regional Inequality 1952-2007g q y
40
Gini Stimulus packa
30
35
Go West
20
25 ?10
15 New Countryside Movement &Building Harmonious Society
0
5
1950 1960 1970 1980 1990 2000 20101950 1960 1970 1980 1990 2000 2010
Conclusions
• Development strategies and economic policies have affected the course of economic growth and income distributionincome distribution.
• Changes in regional inequality match the phases• Changes in regional inequality match the phases of Chinese history remarkably well
The Limit of DecentralizationThe Limit of Decentralization
• When there is large regional variation, decentralization may not work well.
• There is an increasing scale of economy due to the fixed cost of administration.
• With the presence of increasing scale, decentralization may force capital flow from poor to rich regions.
Coastal Region: Race to the TopCoastal Region: Race to the Top
• Conditions:Conditions:• Regions are similar;• There is a mobile factor of capitalp
• Consequence:• Less tax on capital but more on land • Better investment environment
M i i h l l l l• Many innovations at the local level
Uneven Fiscal Burden
Zhang (2006)
Regressive Tax Rate in Chinag
Zhang (2006)
Two spirals
• Tax burdens are extremely high in poor regions with agriculture as the major means of production.• Downward spiral: small tax base more extraction• Downward spiral: small tax base, more extraction
from limited agricultural surplus and nonfarm activities, worsening investing environment, and lowering public goods provision.
• They are low in developed regions initially with a large• They are low in developed regions initially with a large nonfarm sector. • Virtuous cycle: light tax burden for each enterprise, y g p ,
more public inputs, better investing environment.
Per Capita GDP in 2008
Inner MongoliaJilin
Heilongjiang
Xinjiang
Qinghai
Gansu Hebei
Shaanxi
Shanxi
Liaoning
ShandongNingxia
Beijing
Tibet
g
Sichuan Hubei
Hunan
ShaanxiHenan
Anhui
JiangxiGuizhou
Jiangsu
ZhejiangShanghai
Yunnan Guangxi
JiangxiGuizhouFujian
Guangdong
Hainan
Taiwan
MacauHong Kong
GDP Per Capita(yuan)
< 1000010001 15000 $1 000
$10,000
Hainan10001 - 1500015001 - 2000020001 - 40000> 40000Not included
$1,000Urban/Rural income=3.3Inland/Coast income=2.2
The Impact of Openness
• In a closed economy, regional comparative advantage is mainly determined by agricultural production conditions.
• When opening up, regional comparative advantage i l d i l b lis evaluated in a global context.
• In addition, many policy privileges are granted to t l icoastal regions.
The Impact of Decentralization
• But decentralization has strong distributional impact.
• Centralization: more transfers and less incentives for local governments
• Decentralization: less transfers, more incentives.
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