MengGregory&Wan_urban poverty_2007

MengGregory&Wan_urban poverty_2007 - Review of Income...

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URBAN POVERTY IN CHINA AND ITS CONTRIBUTING FACTORS, 1986–2000 by X in M eng * and R obert G regory Australian National University and G uanhua W an United Nations University–World Institute for Development Economics Research, Finland Food price increases and the introduction of radical social welfare and enterprise reforms during the 1990s generated significant changes in the lives of urban households in China. During this period urban poverty increased considerably. This paper uses household level data from 1986 to 2000 to examine what determines whether households fall below the poverty line over this period and investigates how the impact of these determinants has changed through time. We find that large households and households with more nonworking members are more likely to be poor, suggesting that perhaps the change from the old implicit price subsidies, based on household size, to an explicit income subsidy, based on employment, has worsened the position of large families. Further investigation into regional poverty variation indicates that over the 1986–93 period food price increases were also a major contributing factor. Between 1994 and 2000 the worsening of the economic situation of state sector employees contributed to the poverty increase. 1. I ntroduction Although income increases in urban China pushed the average household to higher living standards, economic circumstances among poor households may not have improved in the 1990s. For example, Gustafsson and Wei (2000), Khan and Riskin (2001), Xue and Wei (2003), and Meng et al. (2005) find that urban poverty increased considerably during this period. 1 There were many reasons for this. First, in the early 1990s price reform led to a significant increase in food prices, which play an important role in determining living standards of the poor. Second, accel- eration of social welfare reform, which switched government provision of medical care, old age pensions, and highly subsidized education and housing to more reliance on individual provision, also put significant economic strains on low income groups. Third, poor households were particularly affected by enterprise restructuring, which increased the urban unemployment rate from 6 percent in 1993 to 12 percent in 2000 (Giles et al. , 2005; Knight and Xue, 2006). Note : We would like to thank Terry Sicular, other participants at the WIDER 2005 Helsinki conference on “China Income and Poverty”, two anonymous referees and the editor for very useful and constructive comments and suggestions. Financial support from the Australian Research Council is acknowledged. *Correspondence to: Xin Meng, Department of Economics, Research School of Pacific and Asian Studies, Australian National University, Canberra 0200, Australia ([email protected]). 1 The findings of Ravallion and Chen (2004), however, differ. They find extremely low poverty rates in urban China in the 1990s (the highest was in 1990 at 2.6 percent and the lowest was in 2000 at 0.54 percent).
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