Regional Inequality in China
Delving deeper into regional inequality, we perform a similar analysis by looking at how the Gini evolved for Urban and Rural China. As we can see from the graphs below, inequality for both Urban and Rural China follow a similar trend of the inequality when we look at China as a whole, but Rural inequality seems to be consistently higher that Urban inequality until 2013, when inequality starts to decrease, and the magnitude of the change is bigger for the rural side.
A very interesting insight, not available when simply looking at the historical trend, is the comparison of the Gini index in relation to the maximum Gini deemed tolerable given the average level of per capita income. As we can see from the graph on the right, while China (aggregate) was very close to the inequality possibility frontier in 1981, looking in detail for Rural China tells us that this part was dangerously past the point of sustainable inequality. One should look at the historical context to understand that the picture could indeed make sense, and that following the reforms for the period 1978 – 1984 (especially the agricultural reforms that improved productivity).
There exist another kind of geographical difference in inequality in China, which is the west – east difference, but for the specific case of China, the gap between Urban and Rural divide amounts to over 70% of the total inequality (Wan, 2007). The author established this performing a Theil (Mean Log Deviation decomposition) analysis of inequality.
Regional Inequality in Italy
Unfortunately, PovcalNet does not provide data related to Urban/Rural division for Italy but it is well established that Italy too presents a great regional divide between North and South, that goes back more than 150 years since the very foundation of the country. How has this inequality evolved over time?
Some insight can be drawn by the following output obtained by the “Italy country report on inequality” (Ballarino and al. 2012). Note that the scale is different for the superimposed trends and the authors do not mention which refers to which and this may be misleading. Nevertheless, given that the South has an higher inequality, I assumed that the main scale on the left refers to the South region.
Here we can see that also at a regional level, after an initial decrease, the country is experiencing an increasing divide between the two regions.
First discussion: inequality today and in the past
At first glance, It seems that two different countries like Italy and China are both suffering from increasing regional inequality. Once a clear picture of the state of the world has been established, it is natural to ask oneself questions such as:
- When did this increase in inequality start? Is what we are observing part of a bigger trend, or in other words, before drawing our conclusions, are we sure that are looking at the whole picture?
- What are the drivers of these processes? If the drivers of inequality are the same, then the countries could benefit from leaning from each other.
In the next section I try to draw more insights regarding the following question: is the inequality we see today a consequence of the inequality experienced in the past?
A better look at regional inequality in China
In this section, I look a bit further back in time. Tian and at (1996) provide a good overview of the post second world war period in China until the 1990s, dividing the following decades in three main periods (Central planning 1952 – 1965, Cultural revolution 1965 – 1978 and Market reforms 1978 – 1993), and seeks to establish if there was a pattern of convergence or divergence between different provinces.
The conclusions drawn from their research is that different trend took place at different periods. While in the first period there was no clear trend, China experienced more divergence between provinces during the cultural revolution and this trend was reversed after 1978 and the “Open Doors” Policies.
As China became more open to the world, some provinces and the coastal ones have begun again to grow at a faster rate – increasing once again the inequality. Wan (2007) points out that a major contribution to this last wave of increasing inequality is due to the effects of the increased globalization that followed the 1978 policies. In the table below I report the data regarding FDI and the flow of imports and exports for China.
As we can see from the graphs, China really opened up during the 1980s. Zhang and Zhang (2003) analyze the effect of globalization on regional inequality using data at the provincial level in China and found that globalization (in terms of Foreign Direct Investment and foreign trade) impacted negatively regional inequality in China by contributing to an economic growth that has been spread unevenly.
A better look at regional inequality in Italy
As mentioned in the introduction, the regional inequality in Italy has been an issue from the very beginning of Italy. Originally started as a group of independent countries, and the south region, formely the kingdom of the two Sicilies was annexed to the Kingdom of Piedmond and Sardinia. The populations were very different, even spoke different languages, and when the north of Italy experienced its first industrial revolution at the beginning of the twentieth century, the south remained largely agricultural (Usseglio, 2016) until the end of second world war.
Felice (2013, Working paper), characterizes the post war era in a first period, where part of the south starts to converge, but in the 1970s this process seem to stop and inequality starts to increase again.
After the analysis for China, one wonders if globalization had similar effects for Italy. For this reason I report the results of a similar analysis performed on
In the case of Italy, FDI seem much lower (and also close to zero at the start of the series), but the foreign trade has also increased dramatically, especially after the 1990s. A main difference between Italy and China is that China was not closed to foreign investment, Italy comes from a completely different historical background. It would be interesting to research how and if globalization also had a similar effect on regional inequality in Italy in the past three decades.
Nevertheless, when we put into perspective these results, and we take into account for the fact that China starts as a much less developed country at the end of the 1970s, it’s surprising to see the effect of the “opening up” of the country. The following graphs put together these two measures of globalization for the two countries.