A Review of the Chinese Gini Coefficient from 1978 to 2008

Based on Lewis’ dual-sector model, this paper explores a new mathematical model to evaluate income inequality between urban and rural residents quantitatively. Using the model, this thesis indicates that as the urban population increases, the income inequality between rural and urban residents will first rise and then fall. Further, this paper also provides a parameter to estimate current situation and forecast the future changing tendency. These findings are applied to examine Chinese rural-urban income disparity from 1978 to 2008 and the results show that the rise of the urban population, rather than the enlargement of the income gap between urban and rural residents, plays the major role in the increase of the Gini ratio between rural and urban inhabitants from 1978 to 2001, whereas after 2001 the further increases in the urban population tended to narrow the urban-rural income disparity. Using the econometrics model, this paper also investigates the situation in each province from 2005 to 2007, to present a comprehensive picture of the divided Chinese urban-rural income. The results indicate that the key factor determining urban-rural disparity is the process of urbanization