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Inequality and Poverty in China: Institutional Change and Public Policy, 1978 to 1988

Profile image of Ehtisham AhmadEhtisham Ahmad

1991, The World Bank Economic Review

Abstract

There is considerable uncertainty and debate about changes in poverty and living standards that are likely to occur in an economy in transition from centrally planned allocations to a more market-oriented basis, but a dearth of evidence and rigorous analysis remains. There is a tradeoff between policies that provide a guaranteed living standard with low inequality, albeit at a low income level, and systems that provide much higher monetary incomes, but create greater income variability and vulnerability, particularly during periods of high inflation. The Chinese experience following the economic reforms of 1978 highlights this dilemma, and our analysis strongly suggests the need for appropriate social safety nets if rapid growth is to be achieved without the poor and vulnerable bearing the costs of such growth. At the time of writing, Ehtisham Ahmad was with the Development Economics Research Program of the London School of Economics on leave of absence at the World Bank. Yan Wang was a McNamara Fellow at the World Bank. This article builds on a discussion of the historical pattern of poverty in China by . The authors are indebted to Athar Hussain, Stephen Ludlow, Alan Piazza, Christine Wallich, and Gang Zou for helpful discussions and support and to Shahid Yusuf, the staff of the World Bank China Department, and the three referees for helpful comments on an earlier draft.

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