from 1986 to 2000, suggest that urban consumption poverty increased in the 1990s due to the increase in income uncertainty as the price of education, housing, and health care (which were previously provided free or at highly subsidized prices by the state) went up when economic reforms deepened. Within rural areas, the patterns of income distribution changed over the past quarter century, which contributed to the differentiated impacts of growth on poverty reduction. Zhang and Wan (2006) quantify the relative importance of growth and distributional changes in explaining poverty, and find that rural poverty increased in the second half of the 1990s and adverse distributional changes are the main cause of increase in rural inequality and hence overall inequality. They argue that agriculture-led growth raised rural income, improved income distribution, and as a result achieved unprecedented reduction in rural poverty in the late 1980s; however, in the late 1990s, the impact of adverse distributional changes either outweighed or weakened the impact of growth on poverty reduction. Meng et al. (2005) regress the logarithms of a poverty index on those of the average income and Gini index to obtain the marginal impacts of growth and redistribution.<sup>3</sup>

**Figure 2 – Relationship between Gini and urban-to-rural/coastal-to-inland income ratios**

<!-- Start of picture text --> 50<br>45 2003<br>2001<br>2000<br>1994<br>45 19991995200019931994 2001 2003 40 1992 1993 1995 19961997 1998 1999<br>40 1997 1998 1996<br>1992 1991<br>1991 35 1990 1989<br>35 1990 1989<br>1988<br>1988 1987<br>19861987<br>30 1981 30<br>19831919884 19825<br>1.5 2 2.5 3 3.5 1.6 1.8 2 2.2 2.4<br>urban to rural income ratio coastal to inland GDP per capita ratio<br>Gini Gini<br><!-- End of picture text --> Source: Huang and Luo (2008) Income inequality between rural and urban areas within provinces differs. Higher income provinces have smaller urban-rural income gaps, while difference in rural-urban incomes in the poorer regions is particularly pronounced (World Bank, _China Poverty Assessment_ ). In 2006, urban to rural per capita income for the three richest provinces (Beijing, Tianjin and Shanghai excluded) was about two and a half times, while the ratio was about four and a half for the three poorest provinces (Yao, 2008). A large part of the inequality between regions is in fact associated with the differences between their respective rural areas and is related to the uneven degree of urbanization across provinces. Rural income and urbanization rate are both lower in inland provinces than in coastal provinces. In 2005, rural per capita income is 70 percent higher and urbanization rate<sup>4</sup> is 65 percent higher in coastal region than western region. As urban income is in average twice to three times rural income, a larger portion of urban population have contributed to a higher aggregate income level in coastal areas. Acceleration of migration and

> 3 Results on changes in poverty over time are sensitive to poverty lines chosen and index employed (Bishop et al., 2006).

> 4 Here, urbanization rate is defined as the ratio of population with urban residence to total population.

4