How does real exchange rate influence income inequality between urban and rural areas in China?

The channels through which the real exchange rate influences urban/rural pe r capita real income inequality are analyzed using yearly data for 28 Chine se provinces. Due to the higher share of tradable goods produced in urban t han rural areas, the real depreciation of the Chinese currency raised the u rban bias, contrary to the effect usually expected. This rise was, however, mitigated because of the impact of the exchange rate on the urban/rural co nsumer price ratio, real public wages, and the ratio of industrial/agricult ural protection rates. It disappeared for coastal provinces due to the stro ng development of outward-oriented rural industrial activities. (C) 2001 El sevier Science B.V, All rights reserved.