Income inequality among minority farmers in China: Does social capital have a role?

• Author: Lin Liu,Krishna P. Paudel,Ming Lei,Guanghao Li
• DOI: http://doi.org/10.1111/rode.12559
• Published date: 01 February 2019
• Date: 01 February 2019

REGULAR ARTICLE

Income inequality among minority farmers in

China: Does social capital have a role?

Lin Liu

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Krishna P. Paudel

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Guanghao Li

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Ming Lei

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1

Shihezi University, Xinjiang, China

2

Louisiana State University (LSU) and

LSU Agricultural Center, Baton Rouge,

Louisiana

3

Peking University Guanghua School of

Management, Beijing, China

Correspondence

Krishna P. Paudel, Louisiana State

University (LSU) and LSU Agricultural

Center, Baton Rouge, LA 70803.

Email: kpaudel@agcenter.lsu.edu

Abstract

We used recently available household panel data collected

by China's National Bureau of Statistics to examine the

effects of natural, human, material, and social capital on

income inequality among minority farmers in China's

Xinjiang Province between 2011 and 2012. Results

obtained from panel quantile regression and correlated

random effects’models show that income inequality and

the poverty of ethnic farmers have been decreasing to

some extent. Results also indicated that human capital

exacerbates income inequality among the minorities,

whereas the effect of natural capital on income inequality

is not evident. Social and material capital reduce income

inequality among ethnic minorities. Results from the

decomposition of the Gini coefficient indicate that mate-

rial and social capital contribute to a substantial majority

of the income inequality in the region.

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INTRODUCTION

China is facing growing income inequality that is causing both social and political concerns, and

income inequality is becoming one of the more frequently discussed topics in China (Chan, Dang,

Li, & So, 2016; Lyhagen & Rickne, 2011; Wei, 2011). The official statistics from China report a

continuous increase in the Gini coefficient up until 2008, although it has shown a declining trend

in the years since (Li & Sicular, 2014).

The role of income inequality in slowing down economic growth in developing countries has

been highlighted by Barro (1999). Similarly, economic development slows down with inequality at

the early stage of development but eventually takes a “U‐shape,”with economic development ris-

ing after a turning point (Bhandari, Pradhan, & Upadhyay, 2010; Clarke, 1995; Kuznets, 1955;

Mankiw, Romer, & Weil, 1992; Persson & Tabellini, 1994). Theoretical literature on income

inequality is presented from various perspectives, such as industrialization (Yao, 1997), financial

DOI: 10.1111/rode.12559

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© 2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2019;23:528–551.

development (Ghossoub & Reed, 2017; Jalil & Feridun, 2011), national policy (Muinelogallo &

Rocasagales, 2013; Yang, 1999), foreign investment (Chen, 2016; Herzer, Huhne, & Nunnenkamp,

2014), employment (Ding, Dong, & Li, 2009), professional rank attainment (Gustafsson & Ding,

2008), and various capital (Raymo & Xie, 2000).

In general, the income of an individual or household is closely associated with the individual or

household owning human, natural, material, and social capital. Existing studies related to capital

and income inequality examine the effect of human, material, social, and natural capital on income

inequality in China (Lu, Ruan, & Lai, 2013; Tian, Zhang, Zhou, & Yu, 2016; Xing, Fan, Luo, &

Zhang, 2009), but none have investigated the effect of these four different forms of capital on

income inequality in one economic model.

Human capital is one of the major ways to increase income (Becker, 1994; Mincer, 1958;

Schultz, 1961). Although human capital inequality has been reduced in China, income inequality

has not been reduced at the same proportion. This is primarily because education has a convex rate

of return, and there is an unequal rate of return to education at the top of education hierarchy. Peo-

ple with high human capital in high‐income groups earn more than those in low‐income groups,

which means we can hypothesize that human capital magnifies income inequality.

Social capital is the capital of the impoverished and can help increase the welfare of poor peo-

ple (Grootaert, 2001). Social capital gained by being a leader in village committees or by serving

in the country, municipal, and provincial government helps in networking and finding employment

opportunities. Thus, it is assumed to reduce income inequality.

Natural capital, such as increased land holding, allows farmers to purchase other fixed assets

and machinery, which in turn helps to increase farm income and efficiency (Hou, Huo, & Yin,

2017). If the land is not fertile, as is the case in many minority occupied areas in China, natural

capital may not necessarily decrease income inequality.

Material capital, calculated using the value of buildings, machines, and equipment, generally has a

positive effect on income of a household. An increase in material capital may not have similar effects

across all income strata. It can be hypothesized that material capital can shrink income inequality.

We use household panel data collected by China's National Bureau of Statistics from 2011 and

2012 to identify the effects of human, material, social, and natural capital on income inequality

among the minorities in Xinjiang, China. Our objectives in this paper are to understand the effects

of these four different forms of capital on income inequality among minority farmers and to iden-

tify the reasons behind widening income inequality in China. The empirical analysis is extended in

two crucial ways. The first step is that a panel quantile regression and correlated random effects

(CRE) models are employed to determine whether the minority population benefit from these four

kinds of capital. Second, decomposition analysis is used to measure how the four kinds of capital

influence the minorities’overall income inequality.

The study of income inequality among minority populations can provide needed tools to solve

the problem of poverty in the contiguous destitute regions of China (Zhang & Wan, 2006).

According to the sixth nationwide population census of China, more than 134 million minorities

occupy about 60% of the land in the country. The proportion of the poor living below the national

poverty line was 4.5% in 2016, with more than 40 million people struggling with poverty. Most of

these are rural citizens located in the regions largely inhabited by minorities. These regions are

characterized as hilly or mountainous, ecologically deteriorated, having a stagnant local economy,

an old and decrepit or lack of infrastructure, and little opportunity for the self‐development of the

minority class. If the issue of income inequality is not sufficiently addressed, it will likely result in

class disparity that could trigger class antagonism, and perhaps become a potential catalyst for

social instability and even a grave concern for national security in minority regions. Additionally,

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