The growth and inequality nexus: The case of China

This paper examines the simultaneous evolution of income inequality and economic growth using the provincial data from China. The VAR and system-GMM (a la Arellano-Bond) statistical methods are employed. We find that inequality reduction from faster provincial growth is statistically insignificant. But, high income inequality within the province raises the provincial growth rate. Government pragmatic policies, by allowing “some people to get rich first” in the process of the economic reform, might explain how rising income inequality in China has led to faster economic growth.