1. Introduction
It is widely observed that the income gap between regions in China has widened with economic reform. More careful examination of income disparity shows that it first narrowed and then widened drastically (see for example Jian et al. 1995). Scholarly studies have tried to examine political, historical, and geographic factors causing increasing disparity across regions and warned of possible severe consequences that could shake the political regime (see Wang et al.1999). Other studies have argued that regional disparity can be attributed to differences in resource endowments between eastern,central and western parts of the country (Lin et al. 1999). We believe that the widening regional disparity of during the reform period can be understood through the analysis of two trends.
First, we can view the trend through changes in inequality calculated by province. As shown in Figure 1, during the period from 1978 through the late 1980s and early 1990s, regional disparity decreased to its narrowest level with a sharp drop in the coefficient of log income (σ Index)from 0.59 in 1978 to 0.43 in 1990 and in the Theil Entropy Index from 0.28 in 1978 to 0.12 in 1990. From the early 1990s, the income gap increased again to a high of 0.56 ( index) and 0.19 (Theil Entropy), respectively, in 1998. Over the entire post reform period the measures of income disparity among Chinese provinces has shown a “V” shaped path characterized by decline first and an increase later……
