A variety of definitions are useful.<sup>18</sup> First, household membership and the corresponding sampling frame are defined on the basis of residency and registration. Second, income is calculated as the sum of net income (gross revenue less current expenditures) from agriculture, farming sidelines (e.g. animal husbandry and livestock), family-run businesses, plus wage income (earned inside and outside the village), and transfers. We calculate the value of farm output that is not sold, and thus largely consumed by the household, at market prices. We also use household income before taxes, and deflate all nominal values into 1986 prices using the NBS rural consumer price index for each province.

The key outcome in our analysis is “growth” of household per capita income. To mitigate the effect of transitory shocks, or measurement error, on income, we construct two-year averages of household income for each two-year time period. Our initial period is 1987-88, and all household-level variables, and the village statistics calculated from them, are calculated using the average of 1987 and 1988 outcomes for each household. Subsequent two-year endpoints, “ _T_ ”, include: 1990-91, three years after the initial period (1987-88); 1995-96, the next period for which we have adjacent time periods (8 years out); 1997-98; 1999-2000; and finally 2001-02, fourteen years after the initial period.

In Table 1, we report the mean and quantiles of key variables for the panel households. Several things are noteworthy. First, over the entire period per capita income growth averaged 3.0 percent per annum, but there were significant differences in the rates of growth from 1987-88 and our five ending dates. This largely reflects cyclical factors: Marked declines in economic activity accompanied the postTiananmen economic retrenchment and the Asian Financial Crisis. Incomes actually fell between 19871988 and 1990-1991, but recovered significantly by 1995-96 so that over the period between 1987-88 and 1995-96, growth averaged 3.6 percent. Growth in the period ending in 1999-2000 was also lower than that ending in 1997-1998. Second, there was clear heterogeneity in the success of households, but the dispersion in growth rates narrowed steadily over time. At the top end, for example, the 90th percentile of growth rates fell from 11.6% for the period ending in 1995-1996 to “only” 8.5 percent by 2001-2002, while fewer households experienced negative growth rates. Finally, data in Table 1 also reveal a pronounced shift in the structure of incomes. In 1987-88, agriculture accounted for half of household income (55%), but by 2001-2002, this had fallen by more than a third to 36%. Offsetting this decline was the growing importance of wage income earned locally and from outside the village, which grew from only 22% of income to 34%, and a slight increase in the role of income from family businesses.

In our estimation of Equation (1) we wish to control for as many household covariates as possible, and these are described in Table 1. Of particular interest is household education, in this case the

> 18 The RCRE fixed point survey team has followed the definitions and protocols established as standards by the NBS Rural Household Survey unit since its inception in 1986. Further details and comparisons of the RCRE data source with other data from rural China are found in the main text and extensive appendices of Benjamin, Brandt, and Giles (2005)

_Inequality and Growth in Rural China_ , Page 12