Impact of Growing Income Inequality on Sustainable Development in China: A Provincial-level Analysis

Abstract

A growing body of literature has documented the rapidly increasing income disparities that accompanied China's economic growth in the 1980s and 1990s, and the driving factors behind this. Growing income inequality in its turn may have important implications for the accumulation of physical capital, human capital, and natural capital and as a consequence for sustainable economic development. The purpose of this paper is to investigate the potential impact of income inequality on savings, human resources and the environment in China. It starts with an overview of the different causal mechanisms through which income inequality may affect the accumulation of physical capital, human capital, and natural capital, and discusses to what extent these causal relationships may be relevant in the case of China. Next, provincial data for the year 2002 are used to explore the relationship between income inequality and different elements of sustainable development in China. It is found that income inequality does not affect aggregate savings levels. Rising inequality, however, contributes to lower health and possibly also to higher fertility levels. It also lowers the use of chemical fertilizers in agriculture and therefore is likely to reduce water pollution. Other types of environmental degradation are not affected.