Essays on inequality and intergenerational mobility in China

by Yi Fan

Institution: The London School of Economics and Political Science (LSE)
Year: 2015
Keywords: HN Social history and conditions. Social problems. Social reform
Record ID: 1396150
Full text PDF: http://etheses.lse.ac.uk/3094/


This thesis consists of three essays on intragenerational and intergenerational inequality. It focuses on the largest developing country, China, and examines historically and currently under-represented groups. The first chapter, “Does Adversity Affect Long-term Consumption and Financial Behaviour? Evidence from China’s Rustication Programme”, investigates the longterm effects of early experiences on economic behaviour, by referring to the largest forced migration experiment in history. Focusing on the historically under-represented group of people who were sent from urban to rural areas to do manual farm work during their adolescence, I demonstrate that they behave conservatively over the long term. They spend less on housing, accumulate more savings and insurance, and invest less in risky assets. One mechanism for the conservative behaviour lies in the habits formed during adversity. My study sheds light on how a policy, experienced especially in the early stage of life, influences a generation over the long term. In addition to inequality, the second and the third chapters examine intergenerational mobility. The second chapter, “The Great Gatsby Curve in China: Cross-Sectional Inequality and Intergenerational Mobility”, estimates the extent of the decline in intergenerational mobility in income and education during China’s economic transition. The decline is more evident for the currently under-represented groups: females, and residents of rural areas and the western regions. To correlate intergenerational mobility with cross-sectional inequality, a Great Gatsby Curve with a negative slope is presented, and related institutional factors are discussed. This chapter is written jointly with Junjian Yi and Junsen Zhang. The third chapter, “Intergenerational Income Persistence and Transmission through Identity: Evidence from Urban China”, investigates the mechanism of the decreasing intergenerational mobility in income during China’s transition. I demonstrate a shift in the leading contributor to the intergenerational income persistence conditional on income group and age cohort. Specifically, education is a leading contributor for all families before the market reform, and for households with below-average income in the post-reform era. However, a new transmission channel, political identity, plays a leading role in households with above-average income in the post-reform era. It sheds light on the necessity of intensifying reform in contemporary China.