Academic journal article The European Journal of Comparative Economics

The Experience of Rising Inequality in Russia and China during the Transition (1)

Academic journal article The European Journal of Comparative Economics

The Experience of Rising Inequality in Russia and China during the Transition (1)

Article excerpt

Abstract

This paper examines the changes in regional and sectoral inequality that accompanied economic transformation in Russia and China throughout the 1990s. The experiences of the two countries are widely viewed as having been polar opposites. While the Soviet collapse had adverse consequences for many parts of the post-Soviet population, the Chinese experience produced a continuing rise of average living standards. Nevertheless, both countries experienced a drastic increase in economic inequality. In both cases, regional inequalities rose more sharply than inequalities across sectors but within regions. In particular, major urban centers gained dramatically relative to the hinterlands. Also, in Russia as in China, those sectors exercising the largest degrees of monopoly power gained the most (or lost the least) in relative terms. In both countries, the respective position of finance improved greatly, while that of agriculture declined. The decline of agriculture in China, however, was not as precipitous as in Russia, and certain sectors, such as education and science, maintained their position in China in a way that was not possible for them in Russia.

JEL Classification: P52, P27, D39, C82

Keywords: Inequality, Russia, China, Provinces, Sectors

1. Introduction

The collapse of the Soviet Union and the acceleration of economic reforms in the People's Republic of China were landmark events of the 1990s. Generally they are a study in contrasts. Economic liberalization produced chaos, hyperinflation, industrial collapse, and privation in post-Soviet Russia, whereas the Chinese experienced sustained economic growth and continuing, visible improvement in living standards. On the political front, Russia acquired the trappings of parliamentary democracy, with an independent commercial press. Meanwhile China continued under one-party rule guided by the Chinese Communist Party, and an independent media has not been permitted to exist.

It is well-known from studies such as Sheviakov and Kiruta (2001) that economic inequality rose drastically in Russia during the transition. The regional dimension of this increase figures prominently in the papers so far published, including Mikheeva (1999) and Bradshaw and Vartapetov (2003), who calculate regional dispersions for the periods 1990-1996 and 1990-2001, respectively. Federov (2002, p. 443), however, argues that inequality increases between Russian regions "leveled off and even reversed in the late 1990s." Kislitsyna (2003) attempts a general explanation of the rise in income inequality using data from the Russian Longitudinal Monitoring Survey (for even-numbered years from 1992-2000), and also provides a useful comparison to the inequality of expenditures. Her work is however limited to a study of household characteristics, such as age, education, and household composition; from among these variables she identifies earnings status as a key to the rise in Russian income inequality.

For China, Khan et al. (1999) report a 42.5 percent increase in a Gini measure of household income inequality in China between 1988 and 1995 alone; Gustaffson and Li (2001) decompose this change to show the role of money income in rural China and of housing and pension benefits in urban areas, while Yang (1999) argued from data on two provinces that "widening sectoral gaps in recent years have caused the rising inequality in China." Meanwhile, in a contrarian but narrow paper, Wei and Wu (2001) argue that urban-rural inequality between cities and adjacent countryside declined in areas experiencing greater exposure to international trade. Benjamin et al. (2004) document rising rural inequality from 1987 through 1999 with data from nine provinces, finding an accelerating increase in inequality since 1995, while Wu and Perloff (2004) estimate the shapes of whole distributions (rural, urban and the rural/urban gap) from interval statistics in the national household survey. …

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