Convergence and Intercountry Inequality within Asia: A Combined Approach Using Decomposition Techniques and Transitional Dynamics Analysis

• Author: Jianxin Wu,Lafang Wang,Yanrui Wu,Tsun Se Cheong
• DOI: http://doi.org/10.1111/asej.12192
• Published date: 01 December 2019
• Date: 01 December 2019

Convergence and Intercountry Inequality within

Asia: A Combined Approach Using

Decomposition Techniques and Transitional

Dynamics Analysis

Lafang Wang, Tsun Se Cheong, Yanrui Wu and Jianxin Wu

Received 17 May 2017; Accepted 15 December 2019

This study provides a comprehensive analysis of intercountry inequality and

convergence in Asia by using a combined approach that is based on decomposi-

tion techniques and transitional dynamics analysis. The research is divided into

three stages. First, decomposition by regional subgroups is conducted to esti-

mate the contributions of the interregional component and the five spatial

groupings to overall inequality to reveal the development of inequality in Asia.

Second, the technique of decomposition by income sources is used to evaluate

the relative significance of the agricultural, industrial and service sectors to

facilitate formulation of industrial policy for economic developmen t. Finally,

the present study an alyses the evolution of r egional inequality and assesses the

possibility of convergence.

Keywords: Asia, inequality, convergence, income mobility, distribution dynam-

ics, inequality decomposition.

JEL classification codes: D63, O10, O14, O15, O53, R11.

doi: 10.1111/asej.12192

*Wang: School of Economics and Trade, Hunan University, 109 Shijiachong Rd, Changsha

410079, Hunan, China. Email: lfwang@hnu.edu.cn. Cheong (corresponding author): Department of

Economics and Finance, Hang Seng University of Hong Kong, Hang Shin Link, Siu Lek Yuen, Sha

Tin, Hong Kong. Email: jamescheong@hsu.edu.hk. Wu: Business School, University of Western

Australia, 35 Stirling Highway, Crawley, Perth WA 6009 Australia. Email: yanrui.wu@uwa.edu.au.

Wu: School of Economics, Jinan University, 601 Huangpu W Ave, Tianhe District, Guangzhou,

China. Email: twujianxin@jnu.edu.cn.

The work of this paper was supported by the Chinese Ministry of Education Humanities and

Social Science Youth Fund (Grant No. 15YJC790083) and the Natural Science Foundation of Hunan

Province of China (Grant No. 14JJ3058).

© 2020 East Asian Economic Association and John Wiley & Sons Australia, Ltd

Asian Economic Journal 2019, Vol.33 No.4, 341–362 341

I. Introduction

Many researchers postulate that inequality has increased considerably with glob-

alization. With the deepening impact of globalization, inequality has reached

record levels. This enormous level of disparity not only obstructs progress on

poverty reduction and hinders economic growth but also leads to different kinds

of social dysfunction (e.g. Cheong and Wu, 2015).

Given that more than 4 bil lion people, or 60 p ercent of the world’s popula-

tion, are living in Asia, the negative impacts of inequality are far-reaching.

Therefore, a comprehensive study on inequality is justified.However,toour

knowledge, there has been no recent study on convergence and transitional

dynamics of income inequality in Asia. The analysis results of the present

study not only reveal the evolu tionary trend s of income i nequality amon g

Asian countries but also provide pertinent policy implications for combating

inequality.

This paper contributes to the literature as follows. First, this study is the first

to incorporate decomposition techniques with a distribution dynamics approach

in analyzing intercountry inequality and convergence in Asia. Second, a newly

developed display tool of the stochastic kernel analysis is used to investigate the

mobility of different countries within the distribution of in come. This combined

approach not only provides an analysis of the recent pattern and trend of

inequality but also reveals the development of inequality in Asia.

The present study is divided into three stages so as to provide a compre-

hensive analysis on inequality and convergence in Asia. First, the countries

are divided into five regional subgroups and decomposition by subgroups is

conducted to estimate the contributions of the interregional component and

each of the spatial groupings to overall inequality. The decomposition analy-

sis can shed light on the underlying patterns of inequality and quantify the

level of interregional inequality within Asia. It can reveal the relationship

between geographical groupings and inequality. Second, the technique of

decomposition by income sources is used to evaluate the contributions of the

three economic sectors. Information on the relative significance of the agri-

cultural, industrial and service sectors can facilitate the formulation of indus-

trial policy for economic development. Finally, this study analyzes the

evolution of regional inequality and assesses the possibility of convergence.

Stochastic kernel analysis is used to examine the transitional dynamics. The

transitional dynamics analysis not only offers a forecast of future distribution

of income but also reveals the mobility of each country within the distribu-

tion of income. Moreover, the mobility probability plot (MPP), a new display

tool of distribution dynamics analysis developed by Cheong and Wu (2018),

is used in this study. The new tool can provide vital information regarding

the evolution of inequality, and priority lists can, thus, be formulated to bet-

ter coordinate international efforts i n fostering economic development

in Asia.

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