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By:Dawit Kim
Published on 2016 by

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China has experienced a rapid growth in their economy since the economic reform in early 1980s. However, along with the rapid economic growth, China has also, faced an increment in income inequality. Prior to the economic reformation in 1978, China had maintained a stable income inequality as indicated by the unfluctuating Gini coefficient (measures the inequality on a scale of 0 to 1 from perfect equality to perfect inequality). However, after the reform, the Gini coefficient increased (Benjamin, 2011). The increment in Gini coefficient infers that the income inequality has grown; hence, the data seems to be positively correlated. However, by solely looking at the data, do we know the causality between economic growth and income inequality? This paper will examine the correlations and determine whether income inequality causes economic growth in China using the panel data of GDP per capita and GINI coefficient from 1960 to 2000.

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