China’s Lagging Poor Areas, by Martin Ravallion and Jyotsna Jalan, 1999, The American Economic Review Papers and Proceedings
There are remarkable geographic differences both cross and within provinces in China. What creates the poor areas? Are they catching up? What should government do? In their paper (AER, 1999, 103 citations), Ravallion and Jalan looked at these questions.
There is a bunch of evidence on convergence (Raiser 1998; Chen and Fleisher, 1996; Jian et al., 1996). However, it would be too hasty to conclude that China’s poor rural areas will eventually catch up. There is sign of dualistic divergence in the post-reform period between the coastal provinces and much of inland China (Jian et al., 1996). There is evidence for interurban convergence, but also for divergence within the rural economy (Howes and Hussain; 1994, Ravallion and Jalan, 1996; Khan and Riskin, 1998).
A "geographic poverty trap” can arise if there are geographic externalities generated by local public goods, or local endowments of private goods with spillover effects, and that capital is not perfectly mobile. In this situation, a poor household live in a rich area can eventually get rid of poverty, yet an otherwise identical household living in a poor area experiences stagnation or decline. In Ravallion and Jalan (2002), they proposed a way to identify the impact of time-invariant geographic capital on consumption growth and discussed factors such as natural conditions, rural roads, private investment in agriculture and health care.
Since the mid-1980’s antipoverty policies in China have emphasized on poor-area development. When looking at the unconditional growth rates of affected areas, the policies seem to be unfruitful. The areas covered by policies actually have lower growth rates than those uncovered. However, initial area characteristics and whether the area is targeted are correlated. As a result, such unconditional evaluations will underestimate the impact of programs. What Jalan and Ravallion find, based on a structure model, is that the gains from the program were enough to prevent absolute decline, but were not enough to reverse the underlying divergent tendencies.
But these programs do have limitations. For example, the counties covered are on average poorer than uncovered ones, but about half of the poor people live in the uncovered “rich” counties. A further limitation concerns lump sum vs consumption smoothing improvements. Year to year fluctuations in income is an important cause of poverty in rural areas while most policy instruments are only able to provide temporary consumption increases. Another common criticism to direct investment is that it would be better to foster out-migration from poor areas than investing in these areas. However, investing in poor area is arguably a necessary condition for out migration. Rural families in China will almost never abandon their land. Underdevelopment and inherent riskiness of agriculture in poor areas can impede export of labor on farm.
Reference
Chen, Jian and Fleisher, Belton, 1996, Regional Income Inequality and Economic Growth in China, Journal of Comparative Economics, 22, issue 2, 141-164.
Khan, A., & Riskin, C. 1998. Income and Inequality in China: Composition, Distribution and Growth of Household Income, 1988 to 1995. The China Quarterly, 154, 221-253.
Howes, Stephen, and Athar Hussain 1994 "Regional Growth and Inequality in Rural China° London School of Economics Working Paper.
Jalan, Jyotsna & Ravallion, Martin, 1996. Transient poverty in rural China, Policy Research Working Paper Series, The World Bank.
Jalan, Jyotsna & Ravallion, Martin. 1999. China's Lagging Poor Areas. American Economic Review. 89. 301-305.
Jalan, Jyotsna & Ravallion, Martin,2002. Geographic poverty traps? A micro model of consumption growth in rural China, Journal of Applied Econometrics Volume 17, Issue 4, 329–346
Raiser, Martin. 1996. Subsidising Inequality: Economic Reforms, Fiscal Transfers and Convergence Across Chinese Provinces. The Journal of Development Studies. 34. 1-26.
Tianlun Jian, Jeffrey D. Sachs, Andrew M. Warner, , 1996. Trends in regional inequality in China, In China Economic Review, 7(1), 1-21
There is a bunch of evidence on convergence (Raiser 1998; Chen and Fleisher, 1996; Jian et al., 1996). However, it would be too hasty to conclude that China’s poor rural areas will eventually catch up. There is sign of dualistic divergence in the post-reform period between the coastal provinces and much of inland China (Jian et al., 1996). There is evidence for interurban convergence, but also for divergence within the rural economy (Howes and Hussain; 1994, Ravallion and Jalan, 1996; Khan and Riskin, 1998).
A "geographic poverty trap” can arise if there are geographic externalities generated by local public goods, or local endowments of private goods with spillover effects, and that capital is not perfectly mobile. In this situation, a poor household live in a rich area can eventually get rid of poverty, yet an otherwise identical household living in a poor area experiences stagnation or decline. In Ravallion and Jalan (2002), they proposed a way to identify the impact of time-invariant geographic capital on consumption growth and discussed factors such as natural conditions, rural roads, private investment in agriculture and health care.
Since the mid-1980’s antipoverty policies in China have emphasized on poor-area development. When looking at the unconditional growth rates of affected areas, the policies seem to be unfruitful. The areas covered by policies actually have lower growth rates than those uncovered. However, initial area characteristics and whether the area is targeted are correlated. As a result, such unconditional evaluations will underestimate the impact of programs. What Jalan and Ravallion find, based on a structure model, is that the gains from the program were enough to prevent absolute decline, but were not enough to reverse the underlying divergent tendencies.
But these programs do have limitations. For example, the counties covered are on average poorer than uncovered ones, but about half of the poor people live in the uncovered “rich” counties. A further limitation concerns lump sum vs consumption smoothing improvements. Year to year fluctuations in income is an important cause of poverty in rural areas while most policy instruments are only able to provide temporary consumption increases. Another common criticism to direct investment is that it would be better to foster out-migration from poor areas than investing in these areas. However, investing in poor area is arguably a necessary condition for out migration. Rural families in China will almost never abandon their land. Underdevelopment and inherent riskiness of agriculture in poor areas can impede export of labor on farm.
Reference
Chen, Jian and Fleisher, Belton, 1996, Regional Income Inequality and Economic Growth in China, Journal of Comparative Economics, 22, issue 2, 141-164.
Khan, A., & Riskin, C. 1998. Income and Inequality in China: Composition, Distribution and Growth of Household Income, 1988 to 1995. The China Quarterly, 154, 221-253.
Howes, Stephen, and Athar Hussain 1994 "Regional Growth and Inequality in Rural China° London School of Economics Working Paper.
Jalan, Jyotsna & Ravallion, Martin, 1996. Transient poverty in rural China, Policy Research Working Paper Series, The World Bank.
Jalan, Jyotsna & Ravallion, Martin. 1999. China's Lagging Poor Areas. American Economic Review. 89. 301-305.
Jalan, Jyotsna & Ravallion, Martin,2002. Geographic poverty traps? A micro model of consumption growth in rural China, Journal of Applied Econometrics Volume 17, Issue 4, 329–346
Raiser, Martin. 1996. Subsidising Inequality: Economic Reforms, Fiscal Transfers and Convergence Across Chinese Provinces. The Journal of Development Studies. 34. 1-26.
Tianlun Jian, Jeffrey D. Sachs, Andrew M. Warner, , 1996. Trends in regional inequality in China, In China Economic Review, 7(1), 1-21
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