Unequal Transition: The Widening Wealth Gap amidst China’s Rapid Growth

Yangtian Jiang, Yu Zheng and Lijun Zhu
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Yangtian Jiang: Institute of New Structural Economics, Peking University, Beijing, China.
Yu Zheng: School of Economics and Finance, Queen Mary University of Lon-don. Mile End Road, E1 4NS London, UK.
Lijun Zhu: Institute of New Structural Economics, Peking University, Beijing, China.

No 955, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: We propose a quantitative theory of wealth creation and distribution during China’s transitional growth from the early 1990s, when barriers to setting up private businesses, trading housing, and migrating from rural to urban areas are struck down. In response to the changing economic environment, a small entrepreneurial class emerges and accumulates substantial wealth, whereas the majority working class, partly due to limited investment available from an underdeveloped financial sector, uses housing as the main vehicle of wealth accumulation over the course of a long-time housing boom. Our heterogeneous-agent dynamic equilibrium framework determines growth and equity jointly. We show a reasonably calibrated version of the model matches the rise in urban China’s wealth inequality since 1995 almost exactly. We further quantify the relative contribution of different reform measures to the rising inequality and discuss the welfare implications taking into account possible growth-equity trade-offs.

Keywords: Wealth inequality; Capital accumulation; Entrepreneurship; Housing; Migration (search for similar items in EconPapers)
JEL-codes: E21 O11 O16 O18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-dge, nep-ent, nep-fdg and nep-ure
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