The impacts of structural transformation and industrial upgrading on regional inequality in China

- We examined the impacts of structural transformation and industrial upgrading on inequality.
- Decomposition was performed for different spatial groupings and industries.
- Industrialization has been the largest contributor to regional inequality in China.
- Inequality in China would be reduced by half if industrialization was distributed evenly.
- The high value-added sectors contributed enormously to the disparity in industrial development.

China has achieved unprecedented success in economic growth since the initiation of economic reforms. The high growth could partly be attributed to the successes in structural transformation of the economy and industrial upgrading of the manufacturing sector toward high value-added products. However, regional inequality in China has increased considerably behind the scenes. In order to have sustainable economic growth, it is thus crucial to investigate the impacts of both structural transformation and industrial upgrading on regional inequality. This paper contributes to the literature by employing a database compiled at the county-level. Decompositions are performed for different spatial groupings so as to provide a clear view of evolution of regional inequality. In addition, the contributions of the major industries to inequality in industrialization are examined by using another database of value-added compiled at the provincial level. The results may have important policy implications for the formulation of a comprehensive and coherent strategy in managing inequality while promoting structural transformation and industrial upgrading.