Public investment and regional inequality in rural China

Abstract This paper develops a method for decomposing the contributions of various types of public investment to regional inequality and applies the method to rural China. Public investments are found to have contributed to production growth in both the agricultural and rural non‐agricultural sectors, but their contributions to regional inequality have differed by type of investment and the region in which they are made. All types of investment in the least‐developed western region reduce regional inequality, whereas additional investments in the coastal and central regions worsen regional inequality. Investments in rural education and agricultural R&D in the western region have the largest and most favorable impacts on reducing regional inequality.