Recent evolution of inequality in East Asia

Abstract

This study uses a decomposition of the Theil inequality index across eight countries to examine the recent evolution of inequality in East Asia. It is found that inequality in the region rose between 1990 and 1997, but that the increase was driven by higher inequality within countries, rather than between them. The most significant contribution to the overall rise in regional inequality came from urban China, where inequality doubled between 1990 and 1997. Our analysis suggests that policies to tackle inequality should be aimed at national and sub-national levels, and particularly at addressing growing rural–urban disparities.

Acknowledgements

The authors wish to thank, without implication, Benu Bidani, Milan Brahmbhatt, Chorching Goh, Homi Kharas, Tamar Manuelyan Atinc and Kaspar Richter for their kind assistance and helpful comments. This work was done as part of ongoing poverty analysis in the East Asia and Pacific Region Poverty Reduction and Economic Management Unit at the World Bank. Views and opinions expressed herein are those of the authors and should not be attributed to the World Bank, member governments, or affiliated institutions.

Notes

¹ Similar questions have been addressed in other contexts. For instance, Milanovic (2002) uses household data to examine the composition of world inequality in 1988 and 1993, while Bourguignon and Morrisson (2002) explore the size distribution of world income over the long haul from 1820 to 1992.

² The choice of countries is determined by the availability of household survey data. The eight countries include most of the large countries in the region and together account for about 95% of the total population in the East Asia and the Pacific region.

³ For a broader discussion of the data, and information on the PPP rates used, refer to World Bank (2002).

⁴ In order to look at the sources of change in inequality, an additively decomposable measure of inequality is needed, which limits the choice of inequality measure to the class of generalized entropy inequality measures. The Theil inequality index is a member of this class. For further discussion of decomposable inequality measures, see Foster and Sen (1998).