Urbanization and Inequality in Asia

This paper provides a quantitative analysis of how the changing dual economic structure and urbanization affect inequality in Asia. Focusing on data for four countries—the Peoples’ Republic of China, India, Indonesia, and the Philippines—the paper asks three questions. First, how much of the past increase in inequality can be attributed to urbanization per se—the rising share of urban population, as opposed to other drivers related to the region's dual economic structure, such as the urban–rural income gap, inequality within the urban sector, and inequality within the rural sector? Second, how might urbanization affect these countries’ inequality in the future as its process continues? Third, moving forward, what is the relative importance of each of these drivers in containing rising inequality in Asia? It is hoped that the framework developed and calculations presented in this paper provide more insights into the dynamics of rising inequality in Asia and can help policy makers prioritize policy actions for confronting it.