Income Growth, Income Gaps, andRural Poverty Reduction in China

Wang Zhonghua, and Yue Ximing*

School of Finance, Renmin University of China, Beijing, China

Abstract: This paper analyzes the evolving trends in China’s rural poverty from 1988to 2018 and how income growth and income gaps contributed to poverty reduction usingrural household data from the China Household Income Project (CHIP). We find that afterChina’s reform and opening up policy introduced in 1978, China’s rural poverty has beenreduced substantially due primarily to income growth, although this poverty-reducing effectwas partially offset by widening income gaps. During the progress of this poverty reduction,however, income distribution replaced income growth as the key driver. For the extremelypoor in particular, their poverty status hinged upon income distribution. As revealed by ourempirical analysis of income sources, wage income became the chief source of income forrural households, contributing a rising share to poverty reduction in the countryside. Thecontribution of net income from government transfer to poverty reduction has increased inrecent years, and this contribution has been increased with the deepening level of poverty.Calculation of the pro-poor growth index suggests that the poor population primarilybenefited from the trickle-down effect of economic growth, and the economic growth patternhas yet to lean towards pro-poor growth.

Keywords: Income growth, income gaps, poverty, pro-poor growth

JEL Classification Code: I32, I38, R28

DOI: 10.19602/j.chinaeconomist.2023.01.07