Income inequality and mobility of rural households in China from 2003 to 2006

Purpose – This paper aims to illustrate the trends of income growth and income inequality and examines the dynamics and determinants of income mobility in rural China from 2003 to 2006. Design/methodology/approach – The authors decomposed the Gini coefficient by different sources and analyzed income mobility using the method of income transition matrix. The authors then estimated the effects of demographic variables, labor migration, and other household characteristics on income growth using a dynamic panel data model. Findings – The study obtained important findings on income mobility and income inequality in rural China. First, annual income inequality in rural China was smoothed during this period after a decline from 2003, with the largest contribution from the income of migration work. Second, income mobility remained rather stable and relatively high, with higher mobility in the interior provinces than in the coastal provinces. Third, the income levels of the poor and the wealthy households converged during this period after controlling other factors. Fourth, income growth depends on in the households' demographic composition, their human capital accumulation, and their chances of getting migration jobs. Originality/value – The sound econometric methods applied to the most current rural household survey data provide important contributions to the literature of income inequality and income mobility in China.