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Rising Income Inequality in China : A Race to the TopIncome inequality in China has risen
 rapidly in the past decades across regions, between rural
 and urban sectors, and within provinces. The dynamics of
 divergence across these sub-national areas have taken the
 form of a "race to the top" - meaning that all
 segments of the population, including the poor with low
 education in lagging inland rural areas, have experienced
 gains in average income. The largest gains have been
 registered by those with higher income and education in
 leading coastal urban areas. Using the China Economic,
 Population, Nutrition and Health Survey data of 1989 and
 2004, we show that the most important factors explaining
 overall inequality are differential returns to schooling and
 sector of employment. A decomposition analysis based on
 household income determination shows that the increase in
 returns to education explains two-thirds of income changes
 in urban areas and one-sixth in rural areas. The widening
 income gaps are the consequence of higher growth in leading
 urban and coastal areas and that the skilled population has
 benefited more from the economic reforms carried out during
 the last 25 years. The authors argue that rising income
 inequality can be part of a normal process of development at
 a certain stage, and that the dynamics of spatial income
 divergence in the form of "a race to the top" can
 be desirable to some extent as it unleashes competitive
 pressure and creates incentives for investment in skills.
 Continuing to improve market efficiency and investing in
 people, in particular improving education service in lagging
 areas to poor people, are important for sustainable growth
 and equitable distribution in the long run.
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Would Freeing Up World Trade Reduce Poverty and Inequality? The Vexed Role of Agricultural DistortionsTrade policy reforms in recent decades have sharply reduced the distortions that were harming agriculture in developing countries, yet global trade in farm products continues to be far more distorted than trade in nonfarm goods. Those distortions reduce some forms of poverty and inequality but worsen others, so the net effects are unclear without empirical modeling. This paper summarizes a series of new economy-wide global and national empirical studies that focus on the net effects of the remaining distortions to world merchandise trade on poverty and inequality globally and in various developing countries. The global LINKAGE model results suggest that removing those remaining distortions would reduce international inequality, largely by boosting net farm incomes and raising real wages for unskilled workers in developing countries, and would reduce the number of poor people worldwide by 3 percent. The analysis based on the Global Trade Analysis Project model for a sample of 15 countries, and nine stand-alone national case studies, all point to larger reductions in poverty, especially if only the non-poor are subjected to increased income taxation to compensate for the loss of trade tax revenue.
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Distributions in Motion : Economic Growth, Inequality, and Poverty DynamicsThe joint determination of aggregate
 economic growth and distributional change has been studied
 empirically from at least three different perspectives. A
 macroeconomic approach that relies on cross-country data on
 poverty, inequality, and growth rates has generated some
 interesting stylized facts about the correlations between
 these variables, but has not shed much light on the
 underlying determinants. "Meso-" and microeconomic
 approaches have fared somewhat better. The microeconomic
 approach, in particular, builds on the observation that
 growth, changes in poverty, and changes in inequality are
 simply different aggregations of information on the
 incidence of economic growth along the income distribution.
 This paper reviews the evolution of attempts to understand
 the nature of growth incidence curves, from the statistical
 decompositions associated with generalizations of the
 Oaxaca-Blinder method, to more recent efforts to generate
 "economically consistent" counterfactuals, drawing
 on structural, reduced-form, and computable general
 equilibrium models.