“The Great Gatsby Curve in China: Cross-Sectional Inequality and Intergenerational Mobility”

Yi Fan, National University of Singapore

Junjian Yi, National University of Singapore

Junsen Zhang, Chinese University of Hong Kong 

This paper provides the first investigation in the Great Gatsby Curve during economic transition, using evidence from a developing country China. We examine the evolution between cross-sectional inequality and intergenerational mobility amid China’s market reform from the late 1970s. First, we present a declining pattern of intergenerational mobility in income across 1970-1980 and 1981-1988 cohorts using data from the China Family Panel Studies in 2010, 2012, and 2014. The declining pattern is resilient to lifecycle, attenuation, and co-residence biases, and is robust across intergenerational income elasticity, correlation, and rank-rank estimations. Moreover, it is more evident for females and residents from the urban and coastal regions. Second, applying provincial level data, we draw the first Great Gatsby Curve in China, associating the intergenerational income persistence with cross-sectional inequality. The positive slope reveals a similar pattern as the one depicted from developed countries. Finally, to understand the evolution of inequality during economic transition, we correlate the changes in intergenerational mobility with changes in market structure, fiscal decentralisation, and public educational policy. Significant influencing factors include share of primary industry, share of private enterprises, outflow migration rate, gross regional product, urban and rural poverty rates, educational expenditure, and university enrolment rate. The results shed lights on the importance of promoting means-tested educational policies to enhance equality of opportunity.