ABSTRACT
Rapidly growing internal income inequality is a thorny problem for economies in transition. China’s regional inequality, especially between its inland and coastal regions, has risen considerably since the economic reform in 1978. Researchers have debated over the driving forces behind the striking divergence in income between inland and coastal China. Empirical evidence also tends to be mixed. A long list of factors has been argued to be responsible for regional inequality, but what are the very fundamental causes? The economic development theory synthesized by Rodrik et al. (2004: 134) provides an appropriate systematic framework to explore the question. This framework highlights the fundamental roles of geography, integration and institutions in determining income levels of economies. Similarly, differences in these three factors help explain income disparities across different economies.
