Economic Transformation and Income Inequality in Urban China: Evidence from Panel Data

Abstract

Using panel data of 4,730 urban residents drawn from 20 cities in China, this article examines changes in income determinants between the prereform and reform eras. To guide this empirical study, a conceptual model is developed that emphasizes the coevolution of politics and markets to synthesize theoretical ideas in the recent debate on the transformation of state socialist societies. The findings show significant changes in returns to education and in the rise of private/hybrid firms in the reform era. There is also strong evidence of institutional persistence in returns to positional power and in the organizational hierarchy. These findings reveal multifaceted processes of transformation that call for more sophisticated theoretical models and in-depth institutional analyses.