Will income inequality in China reverse itself? : Testing the Kuznets hypothesis on Fujian Province 1991-2003

Abstract: Using 1991-2003 yearly statistical data from 66 counties in China’s Fujian province, we examine the relationship between GDP/capita levels and the rural-urban income gap, to see whether there exists any statistical relationship between these variables, and if such a relationship bears resemblance with the Kuznets’ “inverted U” hypothesis, predicting inequality to first rise, and then fall, as economic development proceeds. Our results point in the opposite direction; the income gap falls at the early stage of economic growth, but rises again as growth proceeds. This is the opposite of a Kuznets curve. In addition, the income gap is smaller in counties with access to coast, rivers, and highways and a higher proportion of illiterate. Moreover, the income gap is larger in counties with rugged terrain and a higher proportion of ethnic minorities.