Poverty rates and inequality in China and India

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POVERTY RATES AND INEQUALITY IN CHINA AND INDIA

Povertyrates and inequality in China and India

Povertyrates and inequality in China and India

TheChinese and Indian economies are the most vibrant economies in Asia.In the second half of the 20thcentury, both ChinaandIndia adopted economic and social policies that were aimed atenhancing economic growth and reducing poverty and inequality. Therehas been debate on whether these reforms and polices have beeneffective. This paper looks at some of the changes in the level ofpoverty and inequality in the two countries.

Accordingto Ravallion (2010) (table 1), in 1981, 84.0 percent of people livingin China lived below the poverty line of 1.25 dollars per day.However, after the economic and social reforms, the percentage ofpeople living below the poverty line of one and a quarter dollar aday had reduced to 16.3 percent in 2005. This figure was impressivewhen compared to the average in the developing world which stood at26 percent. On the other hand, the number of people in China livingbelow two dollars per day reduced from 97.7 percent to 36.9 percentbetween 1981 and 2005. In India, people living below the poverty lineof one and a quarter dollars reduced from 59.8 percent in 1981 to41.6 percent in 2005. When the poverty line of two dollars per daywas considered, the figures reduced from 86.6 percent in 1981 to 75.6percent in 2005. This indicates that although the poverty levels inChina were relatively worse in the early 1980s, they improvedsignificantly in the early 21stcentury (Ravallion, 2010). According to Topalova (2008), India hasexperienced rapid economic growth in the late 20thcentury and the early 21 century where the real gross domesticproduct per capital increased from about 3 percent between 1983 and1993 to about four and half percent between 1994 and 2005. Topalova(2008) also notes that poverty levels in India decreasedsignificantly during the same period due to economic reforms adoptedby the government.

Despitethe rapid reduction in poverty in both India and china, the level ofinequality increased. Table 1(Ravallion, 2010) suggests that thegross domestic income per capital grew almost eight times between1981 and 2005, from 543 to 4076. This rapid economic development wasaccompanied by rapid increase in inequality in the country. Accordingto the Gini index, (table 1) there was a relative increase in therate of inequality in China which increased from 29 percent in 1981to 41 percent (Ravallion, 2010). According to Kanbur &amp Zhang(2005), there is a wide variation in the level of inequality whenurban inequalities is compared to rural inequality or inlandinequality is compared to coastal inequality. The regional inequalityis mainly due to the impacts of the economic reforms and otherfactors in different regions. On the other hand table 1(Ravallion,2010) indicates that Gini index reduced slightly in India, from 35percent to 33 percent. This indicates a very slight change in thelevel inequality relative to the rate of expansion of the economy.However, according to Topalova (2008), in the 1990s, there was anoverall increase in inequality in the late 20thcentury in china. When the urban population is considered, rapideconomic development resulted into an increase in inequalities in theurban centers.

Dependingon how the level of poverty or inequality is measured, one can getdifferent results. For example, Topalova, (2008) that in India, thelevel of inequality can be higher if the percentage of peopleparticipating in the stock market, percentage of people owningproperties, households and consumer valuables is considered. Absolute and relative measurement of poverty can also give differentresult. For example, spending two dollars in rural India is not thesame as spending two dollars in urban china. As a result, studies onpoverty and inequality are likely to yield different results andconclusions.

Governmentpolicies have direct impacts on poverty levels and inequality.However, there are some factors that are beyond the influence ofgovernment policies. For example, in china, the economic policiesadopted by the communist government ensured that inequality wasrelatively law. As a result of Cultural Revolution which resultedinto changes in economic policies, inequality peaked in the mid1970s. Other economic reforms such as the rural reforms significantlyreduced the level of inequality in the late 20thcentury. One of the government policies that are likely to affectpoverty levels and inequality is decentralization of economicresources. This is likely to affect how resources are distributed indifferent regions resulting into regional inequality and poverty. Forexample, in china, the government adopted a decentralization policywhere resources were extracted from the agricultural sector to heavyindustry in order to accelerate the rate of industrialization. Thiswas an important factor that led to huge economic disparities betweenurban and rural populations. Additionally, government policies thatfavor the coastal areas widen the level of regional inequalities(Kanbur &amp Zhang, 2005). Similar government policies have animpact on poverty levels and inequality in India. The most importantgovernment policies in India are policies that have an impact on theinvestment climate in the country such as labor regulations. Othergovernment police that affects poverty levels and inequality includepolices that affects accessibility to education and finances as wellas the quality of basic infrastructures. Table 8 (Topalova, 2008)give an overview of how different policies and their effects can havean impact on poverty levels and inequality. For example, the tableindicates that enhanced financial development results into more grownamong the pro-poor populations. Additionally, labor regulations bythe government which are aimed at protecting workers reduce thegained accrued by the poor (Topalova, 2008).

Chinaand India have experienced a rapid economic growth in the recentpast. This has led to a decrease in the level of poverty in bothcountries. However, inequality remains an important issue in bothChinaandIndia. While studies in India have given mixed results, statistics inChina indicate a rapid increase in inequality as the Chinese economyexpands.

References

Kanbur,R. &amp Zhang, X. (2005). “Fifty Years of Regional Inequality inChina: a Journey Through Central Planning, Reform, and Openness”.Reviewof Development Economics,9(1), 87–106.

Ravallion,M. (2011). “A Comparative Perspective on Poverty Reduction inBrazil, China, and India”. TheWorld Bank Research Observer,26(1).

Topalova1,P. (2008). “India: Is the Rising Tide Lifting All Boats?” IMFWorking Paper,WP/08/54.

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