A Three-Component Decomposition of the Change in Relative Poverty: An Application to China

Zengzeng Fan and Wei Zou ()
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Zengzeng Fan: Business School, Zhengzhou University, Zhengzhou 450001, China
Wei Zou: Economics and Management School, Wuhan University, Wuhan 430072, China

Land, 2023, vol. 12, issue 1, 1-15

Abstract: China has eliminated absolute poverty and begun to tackle relative poverty, yet the change in relative poverty in China has been less studied. In this paper, we develop a three-component decomposition of the change in relative poverty and apply it to analyze the relative poverty in China. The change in relative poverty is decomposed into identification, growth, and redistribution components. We compare the three-component decomposition with other decomposition methods in the existing literature and show the advantages of the former. Our study, using the China Family Panel Studies (CFPS) 2010–2018 data, shows that relative poverty is rising. Examining the periods of 2012–2014, 2014–2016, and 2016–2018, we show that the three components differ in their contribution to relative poverty. The identification component rises with income growth and increases relative poverty by 8.42%, 12.19%, and 12.55%, respectively. The growth component reduces the incidence of relative poverty by 8.34%, 11.24%, and 12.18%, respectively. In comparison, the redistribution component increases the incidence of relative poverty by 2.88%, 1.12%, and 6.60%, respectively.

Keywords: relative poverty; poverty measurement; poverty change decomposition (search for similar items in EconPapers)
JEL-codes: Q15 Q2 Q24 Q28 Q5 R14 R52 (search for similar items in EconPapers)
Date: 2023
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