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Decomposing regional income inequality in China and Indonesia using two-stage nested Theil decomposition method

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  • Takahiro Akita

Abstract

The objective of this paper is to present an inequality decomposition method, the two-stage nested Theil decomposition method, which is an extension of the ordinary one-stage Theil decomposition method. The method is analogous to a two-stage nested design in the analysis of variance (ANOVA). It considers the three-level hierarchical structure of a country: region-province-district, and decomposes overall regional inequality, as measured by Theil indices based on district-level mean incomes, into three components: the between-region, between-province, and within-province inequality components. The within-province component is a weighted-average of within-province income inequalities for each province, while the between-province component is a weighted-average of between-province income inequalities within each region. The method uses a district as the underlying regional unit to measure regional income inequality, rather than a province, and thus can analyze the contribution of within-province inequalities as well as between-province and between-region inequalities to the overall regional income inequality in a coherent framework. This paper applies the two-stage nested Theil decomposition method to district-level income and population data in China and Indonesia and explores factors determining regional income inequality in China and Indonesia. Copyright Springer-Verlag Berlin Heidelberg 2003

Suggested Citation

  • Takahiro Akita, 2003. "Decomposing regional income inequality in China and Indonesia using two-stage nested Theil decomposition method," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 37(1), pages 55-77, February.
    • Handle: RePEc:spr:anresc:v:37:y:2003:i:1:p:55-77
    DOI: 10.1007/s001680200107
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    Keywords

    JEL classification: O15; C8;

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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