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July 05, 2005

Poverty Reduction in China

Simon World reads Ravallion and Chen on poverty in China:

Simon World :: China's (Uneven) Progress against poverty: Martin Ravallion and Shaohua Chen (2004), "China's (Uneven) Progress Against Poverty" (Washington: World Bank Policy Research Working Paper No. 3408): During the discussion about China's New Left, Dylan pointed out the above working paper from a couple of economists at the World Bank. Over the weekend I finally had time to read it, and it is a remarkable piece of work for anyone interested in China's income gap, the split between rural and urban and the remarkable poverty alleviation in China. Worth reading in full if you have the time (skip the equations), but Dylan nicely summarised...

  1. China has made huge progress against poverty, but it has been uneven progress. Half of the decline in poverty achieved since reform and opening up came in the first few years of the 1980s. Poverty reduction stalled in the 1990s.
  2. Inequality has been rising. In marked contrast to most developing countries, relative inequality is higher in China's rural areas than in urban areas. Absolute inequality has increased appreciably over time between and within both rural and urban areas.
  3. The pattern of growth matters. Growth in the primary sector (mainly agriculture) did more to reduce poverty and inequality than either the manufacturing or service sectors. Rural economic growth reduced inequality in both the urban and rural areas, as well as between them.
  4. Inequality is a concern both for economic growth and poverty reduction. With the same historical economic growth rates and no rise in inequality in rural areas alone, the number of poor in China would have been less than 1/4 of its actual value today.... [P]eriods of more rapid growth did not bring more rapid increases in inequality... more unequal provinces will face a double handicap... lower growth and poverty will respond less to that growth.

... Putting some numbers on... poverty fell from 76% in 1980 (thank you, Mao) to 23% in 1985. But... the late 80s and early 90s actually saw rises in poverty before another fall in the mid 90s. Most interestingly coming into the late 90s there were signs of rising poverty in rural areas.... Unsurprisingly the authors find that growth in the agricultural sector has been the primary driver of poverty alleviation....

The authors... conclude there is no sign of a short-term trade off between growth and equity.... [T]he only growth that matters for China's poor is in agriculture.... Most interesting of all is the assertion it would appear reasonable to attribute the bulk of rural poverty reduction between 1981 and 1985 to this set of agrarian reforms. Which reforms? De-collectivization and the privitisation of land use rights. That's right. Simply undoing the worst of Mao's madness and giving people some kind of property rights resulted in the biggest reduction of poverty in human history... 77% of the total poverty reduction.

Next comes the government's agricultural prices policy. Raising the compulsary purchase prices of agricultural goods (effectively a tax cut)... reduced poverty....

When it comes to regions... Guangdong, home to Shenzhen (the first "liberated" Chinese city), saw significant and outsized reductions of poverty compared to everywhere else.... Guangdong... showed no uptrend in inequality and thus had the highest rate of poverty reduction despite only slightly above average growth and relatively high initial inequality. The rest of China needs to learn from Guangdong...

Ravallion and Chen's belief that agricultural productivity is the entire game as far as poverty reduction in China is concerned is true in the past, but my guess is that it is unlikely to be true in the future. At some point more rapid urban growth is going to make surplus agricultural labor go away, and start raising the wages and living standards of those in the countryside without access to good land. When? Within a decade is my guess, if present trends continue.

Posted by DeLong at July 5, 2005 01:09 PM