Dynamics of income distribution across Chinese provinces during 1978-1988

This study attempts to examine the growth pattern of China’s economy during 1978-1998 from the perspective of income distribution dynamics. Motivated by the model of dynamic distribution, a transition matrix is derived from a panel of ratios of provincial real incomes to national averages across 30 provinces over 1978-1998. The transition matrix is used not only to reveal the transitions of provinces between the states of income over time, but also to predict whether there is a tendency across provinces to converge in real income per worker in the long run. This study finds evidence of a slight reduction of income dispersion across Chinese provinces over 1978-1998. But the slight reduction of income dispersion is not strong enough for the provinces to converge to mean income. However, there is a strong tendency to converge across provinces within regions and it is evident that in the eastern region poor provinces caught up with rich ones over the period under study. The ergodic distribution indicates that there will not be a tendency to converge in real GDP per capita across provinces in the long run.