China component in international income inequality: based
on method of controlling economic factors
À
MS 379
China component in international income inequality: based
on method of controlling economic factors
Abstracts: The contribution of China is the main engine for decline of international income inequality in
1980’s and 1990’s. It is over 100 percent some years. By applying the method of controlling economic
factors, it is revealed that though economic growth is the major reason of change of China component,
and population is the minor, but it is important. The contribution of population growth to change of China
component fluctuates between 32% and 42.7% in 1980 and 1990’s, and that of economic growth does
between 57.3% and 68%.Therefore, economic growth of China is the main reason, but population growth
also plays an important role for decreasing of international income inequality.
Keywords: China Component; Economic Factors; International Income inequality; Population Factors
À
Address for correspondence: Jiang Zhiyong, Room 1404, 13 Xinchengnan Street, Tianhedong
Road, Guangzhou 510620, China.
Phone: +86 136 6711 0181; E-Mail: [email protected].
Introduction
Global income inequality includes world income inequality and international income inequality (Milanovic
2002a; Bourguignon & Morrisson, 2002). World income inequality focuses on the income gap between
the persons as world citizen, however international income inequality on the income gap between
countries.
Almost all researches on international income inequality get the same results that it shows a
decreasing trend in 1980’s and 1990’s (Milanovic 2004, 2001a; Melchior et al. 2000; Firebaugh 1999;
Theil 1996), and that is not the same as results about world income inequality, in other words, whether
world income inequality decreases or rises in 1980’s and 1990’s is till a problem (Milanovic 2002b;
Sala-i-Martin 2002a, 2002b; Dowrich & Akmal 2001; Wade 2001; Unite Nation Development Program
1999).
China is mainly responsible for decline of international income inequality. Researches have shown
(Sala-i-Martin 2002a, 2002b; Melchior et al. 2000; Schultz 1998) that when China is included,
international income inequality slides down in 1980’s and 1990’s, but when China is excluded, it shows
an increasing trend or no trend (Figure 1, Table 2). The reason is that there has been a fast economic
growth in China since 1978，the gap between China and other industrialized countries has been
narrowed, and also since China is the most populous country, there are more people with the higher per
capita GDP in the world, and consequently international income inequality decreases. Though these
researches have found the importance of China for decline of international income inequality, they do not
analyze that quantitatively, and do not analyze the contribution of economic growth and population
growth of China to the decline of international income inequality.
Figure 1 about here
1
Milanovic (2002a, 2004) has analyzed the contribution of China to the change of international
income inequality between 1980 and 1998 quantitatively, and found that international income inequality
decreases 3.6 Gini points from 1980 to 1998, however Chinese component decreases 5.4 Gini points,
and so the change of China component can explain the change of international income inequality fully.
But he did not analyze China’s contribution from 1978 successively. China economic reform began
since 1978, and has had a fast economic growth since 1978. And also successive analysis is necessary
condition to understand the importance of China for decline of international income inequality.
Schults (1998) decompose the change of international income inequality into two elements: change
of economic factors and that of population factors by using the method of controlling the population
factors, and finds that the change of population factors, or population growth is not the main reason of
change of international income inequality.
Milanovic (2002a, 2004) also take advantage of method of controlling population factors to analyze
the contribution of triangle countries - USA, China and India - to the change of international income
inequality, but does not analyze the contribution of China independently. He finds that the change of
triangle component from 1965 to 1980 contributes 104.2% to change of international income inequality,
change of economic factors contributes 60.4% and change of population factors does 39.6% to change
of triangle component. But the change of triangle component from 1965 to 1998 only contributes 10.9%
to that of international income inequality.
The structure of the paper is like the following. Section 2 presents the properties of data and
methodology. By applying method of controlling economic factors, section 3 analyzes the contribution of
change of China component to change of international income inequality, and contribution of economic
factors and population factors to change of China component. Section 4 analyzes further. Section 5 gives
2
the conclusion.
Data and Methodology
The data is taken from PWT (Penn World Table Version 6.1, Heston et al. 2002). This database provides
the population and per capita GDP data of most the countries in the world.
The population data comes from POP variable in PWT. Considering that analysis of international
income inequality concerns with comparison of income between countries (Summers & Heston 1991),
the per capita GDP data comes from the RGDP variable in 1996 international price, that is, Purchase
Power Parity adjusted per capita GDP in PWT.
With development of empirical and theoretical research of inequality, economists have constructed
many inequality measures, for example, variance of logarithm of income, Gini index, Generalized Entropy
index (Cowell 1995; Cowell & Kuga 1981a, 1981b; Cowell 1977; Theil 1967), Atkinson index (Atkinson
1970). Because of the decomposed properties of Gini index, it is taken as the measure of international
income inequality in this analysis. The component related to China in Gini index is taken as the measure
of China component.
Assume international income distribution is discrete, (x1m, p1m), (x2m, p2m) … (xnm, pnm), x1m,x2m… xnm
are the per capita GDP of n countries respectively, and p1m,p2m… pnm are the population proportion of n
countries respectively to the world population. Let Gm denote the international income inequality of m
year expressed by Gini index, then
G =
m
∑ nj =1∑ nk =1 x jm − xkm p jm pkm
(1)
2 ∑in=1 xim pim
It can be decomposed into the sum of component of all countries, Gjm, that is
1
G =
m 2
∑
n
j =1
(
∑ nk =1 x jm − xkm p jm pkm
)
∑in=1 xim pim
=
1
2
∑
3
n
j =1
G
jm
(2)
Here G
jm
=
∑n
k =1 x jm − xkm p jm pkm
∑in=1 x p
im im
，xjm and pjm are per capita GDP and population proportion of
j th country.
Let Gcm denote China component.
The ratio of change of China component to change of international income inequality between 1978
and m year is the contribution of change of China component to change of international income inequality,
denoted by Rcm, then
R
= ∆G / ∆G = (G
− G ) /(G
−G )
cm
cm
m
c1978
cm
1978
m
Here
(3)
∆G
=G
−G
∆G = G
−G
cm
c1978
cm is change of China component,
m
1978
m is change of
international income inequality. This ratio reflects the contribution of China to change of international
income inequality.
There are two methods to decompose the change of China component, one is controlling economic
factors, and the other is controlling population factors. The method of controlling economic factors is
based on the per capita GDP structure of the world in 1978, and it is used in this analysis.
Gini index with per capita GDP in 1978 and population proportion of m year is taken as measure of
international income inequality with controlling economic factors of m year, denoted by GPm, then
GP =
m
∑ nj =1∑ nk =1 x j1978 − xk1978 p jm pkm
2 ∑in=1 xi1978 pim
(4)
It can also be decomposed into the sum of component of all countries. The component related China
in this Gini index is the measure of China component with controlling economic factors, or the measure of
population factors, denoted by GPcm, then
GP =
cm
∑ nj =1 xc1978 − x j1978 pcm p jm
(5)
∑in=1 x
p
i1978 im
Here xcm and pcm are per capita GDP and population proportion of China.
4
The change of China component is composed of change of population factors and change of
economic factors. Let ΔGPcm denote change of population factors between 1978 and m year, then
∆GP = GP
− GPcm . The change of economic factors between 1978 and m year is equal to the
cm
c1978
change of China component minus the change of population factors, denoted by Δ GEcm, then
∆GE
= ∆G
− ∆GP .
cm
cm
cm
The ratio of change of population factors to change of China component is the contribution of change
of population factors to change of China component, or the contribution of population growth to change of
China component, denoted by RPcm, then
RP = ∆GP / ∆G
cm
cm
cm
(6)
The ratio of change of economic factors to change of China component is the contribution of change
of economic factors to change of China component, or the contribution of economic growth to change of
China component, denoted by REcm, then
RE
cm
= ∆GE
cm
/ ∆G
cm
(7)
The ratio of change of population factors to change of international income inequality is the
contribution of change of population factors to change of international income inequality, denoted by
SPcm, then
SP = ∆GP / ∆G
cm
cm
m
(8)
The ratio of change of economic factors to change of international income inequality is the
contribution of change of economic factors to change of international income inequality, denoted by
SEcm, then
SE
cm
= ∆GE
cm
/ ∆G
(9)
m
China Component, Population Factors and Economic Factors
5
It can be seen from Figure 1 that when china is included, international income inequality decreases in
1980 and 1990’s, but when China is excluded, it show an increasing trend. This phenomenon gives
intuition that China component can explain the change of international income inequality partially or fully.
The empirical analysis below proves that intuition.
The international income inequality in 1978, Gm, is 0.594, 1980, 0.59, and 2000, 0.534. The
change of international income inequality between 1978 and 1980, ΔGm, is 0.4 percentage point, and
then, it become larger and larger, and it is 6 percentage point from 1978 to 2000 (Table 1).
The China component in 1978, Gcm, is 0.209,1980, 0.202, and 2000, 0.161. The change of China
component from 1978 to 1980, ΔGcm, is 0.7 percentage point, and then it becomes larger and larger,
and it is 4.8 percentage from 1978 to 2000.
The contribution of change of China component to change of international income inequality, Rcm, is
145.3%, in 1980, and fluctuates from 82% to 145% in 1980’s, and decreases in 1990’s, and is 79% in
2000. It reaches to 289.2% in 1979 (Figure 2).
Figure 2 about here
Thus, China component is the main engine for decline of international income inequality in 1980’s
and 1990’s, and the contribution of China to change of international income inequality is above 100%
some year. The reason for the contribution over 100% is that the income gap between industrialized
countries and poor countries in Africa and Latin America becomes larger, and that cancels out parts of
contribution of China to international income inequality.
The change of China component can be decomposed into the change of population factors and the
change of economic factors. By applying method of controlling economic factors, it can be got from the
analysis below that though the change of population factors is minor reason of change of China
6
component and the change of economic factors is the major, the change of population factors is
important.
The population factors in 1978, GPcm, is 0.209, 1980, 0.207, and 2000, 0.192. The change of
population factors from 1978 to 1980, ΔGPcm, is 0.2 percentage point, and then, it become larger and
larger, and it is 1.7 percentage point from 1978 to 2000.
The contribution of change of population factors to change of China component, RPcm, is 36. 4% in
1980, and it fluctuate from 32% to 42.7% in 1980’s and 1990’s, and it is 35.3% in 2000 (Figure 3).
Figure 3 about here
The change of economic factors from 1978 to 1980, ΔGEcm, is 0.4 percentage point, and then, it
become larger and larger, and it is 3.1 percentage point from 1978 to 2000.
The contribution of change of economic factors to change of China component, REcm, is 63. 6%,
and it fluctuate from 57.3% to 68% in 1980’s and 1990’s, and it is 64.7% in 2000 (Figure 4).
Figure 4 about here
Though population factors is the minor reason for change of China component and economic factors
is the major, but it is an important, in other words, the population growth plays an important role for
decline of international income inequality. Let analyze that below
The contribution of change of population factors to change of international income inequality, SPcm,
fluctuates between 26.3% and 61.9% in 1980’s, and shows a decreasing trend in 1990’s, and it is 27.9%
in 2000.
The contribution of change of economic factors to change of international income inequality, SEcm,
fluctuates between 55.7% and 92.5% in 1980’s, and shows a decreasing trend in 1990’s, and it is 51.2%
in 2000.
7
Table 1 about here
Further Analysis
In order to analyze the contribution of change of population factors and economic factors to change
China component, the countries chosen should have the data of per capita GDP the in 1978 and
population in contemporary year, therefore there are 107 countries chosen in 2000 and 122 countries
chosen in 1980 (Table 1). For consistency sake, the same countries are chosen in analysis above on the
contribution of change of China component to change of international income inequality.
But if only considering the contribution of change of China component to change international
income inequality, the data of population and per capita GDP in contemporary year are only needed, so
there more countries can be chosen. Even that, the relation between change of China component and
change of international income inequality is just the same.
Now if only considering the contribution of change of China component to change of international
income inequality，Rcm, there are 134 countries chosen in 2000 and 125 in 1980. And the contribution is
126.4% in 1980, and fluctuates between 83.4% and 157.2% in 1980’s and decreases in 1990’s, and iis
85.6% in 2000 (Figure 5, Table 2).
Figure 5 about here
The results is just the same as that of the last section, the change of international income inequality
is mainly driven by the change of China component, the contribution of change of China component to
change of international income inequality is above 100% some year in 1980’s and 1990’s.
The international income inequalities including China and excluding China in Figure 1 are also
estimated in this way, considering that there more countries can be chosen.
Table 2 about here
8
Conclusions
The international income inequality has decreased from 1978 to 2000, and the change of China
component is the main engine for that . The contribution of change of China component is above 79% in
1980’s and 1990’s and even over 100% some years.
By applying the method of controlling economic factors or controlling population factors, the change
of China component is decomposed into change of population factors and economic factors. The former
method has been applied in this analysis, and it is revealed that the contribution of change of population
factors to change of China component fluctuates between 32% and 42.7% in 1980 and 1990’s, and
contribution of change of economic factors does between 57.3% and 68%.Therefore, though economic
growth is mainly responsible for change of China component, and population growth is secondary, but it
is important, that is, the population growth also plays an important role for change of China component
and therefore decline of international income inequality.
Acknowledgement
Author has benefited from suggestion and criticism of Professor Lin Shaogong, Xu Changsheng and Qi
Tongchun. Author is also grated to Jiang Qingyi, Gao Xiuzhen, Cai Jiangwei and Jiang Zhe for their
support and Ouyang Jianxin, Yang Min and Dong Jisheng for their help.
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8904.
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11
Figure 1 The curve on top is international income inequality in Gini index, on bottom
is that excluding China
12
Figure 2 The contribution of change of China component to change of international
income inequality
13
Figure 3 The contribution of change of population factors to change of China
component
14
Figure 4 The contribution of change of economic factors to change of China component
15
Figure 5 The contribution of change of China component to change of international
income inequality when more countries are chosen
16
Table 1
Year
Num
Gm
Gcm
GPcm
1978 122 0.594 0.209 0.209
∆Gm
∆Gcm
0
0
∆GPcm ∆GEcm
Rcm
RPcm
REcm
SPcm
SEcm
0
0
1979 122 0.593 0.205 0.208 0.001 0.004
0.001
0.003
2.893 0.281 0.719 0.812 2.081
1980 122
0.59 0.202 0.207 0.005 0.007
0.003
0.004
1.453 0.364 0.636 0.528 0.925
0.01
0.004
0.006
1.255 0.368 0.632 0.462 0.793
1982 122 0.577 0.195 0.205 0.018 0.015
0.005
0.01
0.82
1983 122 0.575 0.192 0.204
1981 122 0.586 0.199 0.205 0.008
0.32
0.68
0.263 0.557
0.02
0.017
0.006
0.012
0.875 0.325 0.675 0.285 0.591
0.203 0.019
0.02
0.007
0.013
1.046 0.343 0.657 0.358 0.687
1985 122 0.577 0.189 0.202 0.018
0.02
0.008
0.013
1.15
1986 121 0.573 0.187 0.201 0.021 0.023
0.008
0.014
1.076 0.371 0.629 0.399 0.677
1987 121 0.573 0.185
0.2
0.022 0.024
0.009
0.015
1.107 0.377 0.623 0.417
1988 121 0.574 0.184
0.2
0.021 0.025
0.01
0.015
1.209 0.388 0.612 0.469 0.739
1989 121 0.578 0.185 0.199 0.017 0.024
0.01
0.014
1.447 0.427 0.573 0.619 0.829
1990 121 0.574 0.183 0.198
0.026
0.011
0.015
1.323 0.422 0.578 0.558 0.765
0.197 0.026 0.029
0.012
0.017
1.12
1992 121 0.564 0.177 0.196 0.031 0.032
0.013
0.019
1.044 0.404 0.596 0.422 0.622
1993 121 0.556 0.174 0.195 0.038 0.035
0.014
0.022
0.929
1994 121 0.553 0.172 0.194 0.041 0.037
0.015
0.023
0.911 0.396 0.604
1995 121 0.548 0.169 0.193 0.046
0.04
0.016
0.024
0.866 0.394 0.606 0.342 0.525
1996 122 0.543 0.166 0.192 0.051 0.043
0.017
0.026
0.838 0.398 0.602 0.334 0.505
1997 116 0.543 0.166 0.192 0.052 0.043
0.017
0.026
0.837 0.396 0.604 0.332 0.505
1998 117 0.537 0.163 0.193 0.058 0.046
0.016
0.029
0.795
1999 112 0.535 0.162 0.193 0.059 0.047
0.016
0.031
0.794 0.342 0.658 0.271 0.523
2000 107 0.534 0.161 0.192
0.017
0.031
0.791 0.353 0.647 0.279 0.512
1984 122 0.576 0.19
1991 121 0.568 0.18
0.02
0.06
0.048
17
0.377 0.623 0.433 0.716
0.69
0.414 0.586 0.464 0.656
0.39
0.36
0.61
0.64
0.363 0.567
0.36
0.55
0.286 0.509
Table 2
Year
Num
Gm
Gm
Year
Num
Gm
(China
Gm
Gcm
∆Gm
∆Gcm
Rcm
(China
excluded)
excluded)
1950
54
0.522
0.522
1976
118
0.587
0.536
1951
61
0.525
0.525
1977
123
0.588
0.539
1952
62
0.576
0.52
1978
122
0.594
0.544
0.209
0
0
1953
64
0.576
0.521
1979
123
0.591
0.547
0.203
0.004
0.006
1.632
1954
67
0.574
0.516
1980
125
0.587
0.546
0.201
0.007
0.009
1.264
1955
71
0.576
0.522
1981
125
0.584
0.547
0.197
0.01
0.012
1.186
1956
71
0.571
0.522
1982
125
0.575
0.541
0.193
0.02
0.016
0.834
1957
71
0.57
0.52
1983
125
0.573
0.543
0.19
0.021
0.019
0.881
1958
71
0.561
0.511
1984
125
0.574
0.55
0.188
0.02
0.021
1.035
1959
75
0.571
0.521
1985
126
0.574
0.551
0.187
0.02
0.022
1.117
1960
112
0.569
0.529
1986
126
0.571
0.552
0.184
0.023
0.025
1.055
1961
114
0.575
0.527
1987
127
0.57
0.554
0.183
0.024
0.026
1.082
1962
114
0.577
0.53
1988
127
0.571
0.556
0.182
0.023
0.027
1.174
1963
114
0.577
0.53
1989
129
0.575
0.558
0.179
0.019
0.031
1.572
1964
114
0.576
0.531
1990
135
0.571
0.558
0.175
0.023
0.034
1.473
1965
114
0.578
0.54
1991
138
0.559
0.547
0.168
0.035
0.042
1.178
1966
113
0.582
0.545
1992
141
0.554
0.549
0.164
0.04
0.045
1.123
1967
114
0.585
0.545
1993
143
0.547
0.548
0.16
0.047
0.049
1.035
1968
114
0.592
0.545
1994
148
0.543
0.549
0.156
0.051
0.053
1.041
1969
114
0.587
0.54
1995
150
0.538
0.548
0.153
0.056
0.056
1.004
1970
117
0.578
0.526
1996
168
0.535
0.547
0.149
0.06
0.06
1.016
1971
117
0.58
0.528
1997
146
0.534
0.547
0.151
0.061
0.058
0.962
1972
117
0.585
0.533
1998
146
0.527
0.544
0.151
0.067
0.059
0.873
1973
117
0.588
0.538
1999
140
0.526
0.545
0.15
0.068
0.059
0.87
1974
117
0.588
0.537
2000
134
0.524
0.547
0.149
0.07
0.06
0.856
1975
118
0.581
0.532
18