Rising Regional Inequality in China:Policy Regimes and Structural Changes

Regional inequality is severe in China since regional development is uneven due to various initial conditions and government policies. We employ unit root tests allowing for structural breaks to alternative inequality measures from 1952 to 2000. Empirical results indicate that (1) the regional inequality is trend stationary with structural breaks rather than follow a random walk. Thus, ignoring structural changes might induce incorrect inference and misleading policy implications; (2) the break points are associated with episodic events in Chinese economic history such as the Cultural Revolution and market reforms. It implies that the policies had a long-lasting and fundamental effect on the inequality.