Regional Inequality in China allowing for Spatial Cost-of-Living Differences: Evidence from a Hedonic Analysis of Apartment Prices

Chao Li (chao.li@waikato.ac.nz) and John Gibson
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Chao Li: University of Waikato

Working Papers in Economics from University of Waikato

Abstract: Studies of inequality in China typically ignore cost-of-living differences between areas. Under the Balassa-Samuelson effect, non-tradeables cost more in richer areas, so nominal inequality exceeds real inequality. This especially matters in China, where spatial cost-of-living differences should have increased with recent development of urban housing markets. We use new data on apartment prices in 104 major cities in China to develop housing-related spatial deflators. The level of spatial inequality in 2016 is overstated 27 percent if cost-of-living differences are ignored. A hedonic analysis of 41,000 individual apartment sales shows most price variation is between areas, rather than from features of individual apartments. The dominant trend in the reform era is for regional inequality in China to decline, contrary to common perceptions. In nominal terms, the Theil Index for inter-provincial inequality in 2016 is just 46 percent of its 1978 level, and in real terms the fall in inequality would be even greater.

Keywords: China; housing; population; regional inequality; spatial deflators (search for similar items in EconPapers)
JEL-codes: O47 Q56 R11 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2018-08-23
New Economics Papers: this item is included in nep-cna, nep-geo, nep-tra and nep-ure
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