Regional Consumption Inequality in China: An Oaxaca-Blinder Decomposition at the Prefectural Level

Sharp regional differences in income and consumption patterns have characterized the Chinese development process. Focusing on the years 2007 and 2012, this work employs the Oaxaca-Blinder decomposition to assess the extent and the determinants of the urban/non-urban and coastal/inland disparity in consumption patterns. The analysis shows that the average gaps across the Chinese prefectures tend to be mainly explained, along both divides, by the mean differences in local endowments of the covariates that explain consumption over GDP ratio. In particular, at the basis of the observed regional disparity, there is an uneven allocation of FDI and foreign enterprises, as well as of domestic investments in fixed assets and welfare state provisions.