A Measurement of Chinese Urban Residents’ Welfare by Region

Chen Zhihong, Li Yang

Journal of Finance and Economics Vol. 44, Issue 10, pp. 111 - 124 (2018)  DOI:10.16538/j.cnki.jfe.2018.10.008

Summary

With China’s continuous deepening of urbanization, local governments of different provinces and cities have adopted competitive policies to attract more talented workers. In first-tier cities, one can have a higher payment, a better educational environment and more medical resources at the cost of intensive work, expensive housing, pollution and traffic. This tradeoff lends importance to the task of measuring welfare to live in different cities. While traditionally welfare is highly correlated with GDP per capita, deviations are often large.　　This paper chooses a more comprehensive statistic to measure the well-being of people in a province by incorporating consumption, leisure, mortality, and inequality in this statistic. Utilizing the detailed household-level information from the 2010-2014 China Family Panel Studies （CFPS） data, we calculate the whole life welfare of Chinese urban residents in different provinces. Our empirical results show that: Firstly, measurement using GDP per capita only might overestimate or underestimate the welfare inequality although GDP is highly correlated with the welfare. Secondly, first-tier cities like Beijing and Shanghai are strikingly far ahead of other provinces in terms of comprehensive welfare, even relatively more developed provinces such as Zhejiang and Jiangsu achieve the level of as small as 1/3 of Beijing, and this gap in welfare between first-tier cities and other provinces has been increasingly widened. Thirdly, public finance transfer can reduce the inequality in welfare. Therefore, the comprehensive welfare measurement demonstrates less inequality than the GDP per capital in other regions in China. Fourthly, welfare grows slower than GDP per capita, but shrinks much faster when the economy goes down. 　　This paper contributes to the literature by taking a more theory-based measurement and more micro-foundation data to provide comparisons of welfares among different provinces. The results have practical implication for people who choose where to work and live to achieve better well-being.

Keywords

welfare; lifelong utility; regional comparison; structural model; micro data