A Study On China’s Income Inequality Under The Trade Openness

Since the implementation of the reform and opening-up policy, China has madeprofound accomplishments in economic development by promoting the developmentstrategy of export-oriented economy. At the same time however, China’s income gaphas been constantly broadened. The interrelationship between trade liberalization andincome distribution, which has long been one of the most heated debates amongeconomists. Along with the deepening and development of globalization, therelationship between trade liberalization and income distribution has became moreclosely. Whether the simultaneous development of the trade liberalization and thevarying of income gap is an indicator that there exists some correlation between thetwo? If indeed the trade liberalization influences income inequality, then how it works?And what’s the magnitude? Questions of these categories are our focus of this paper.In this dissertation, on the basis of a systematic review of the theories about theimpacts of international trade on income distribution, we analyzed of the influence oftrade on the regional income gap and urban-rural income gap from the perspective ofthe spatial and temporal differences of foreign trade respectively.First of all, we investigate the development and evolution of trade liberalizationand income gap in China respectively from the aspects of inter-regional incomedisparity and income disparity between urban and rural areas, and then decompose thespatial distribution of trade liberalization and the components of income gap usingcoefficient of variation and Theil Index. Analysis on the trade development statusshowed that the China’s foreign trade has made significant development, but at thesame time, there also exists a major imbalance in the temporal and spatial distribution.In terms of time, although China’s foreign trade has made remarkable developmentsince the reform and opening up. However foreign trade really achieved rapiddevelopment is after the1990s after, and therefore the evolution of foreign trade isfrom low to high. In terms of the spatial distribution, as for the geographical location,natural, economic and policy factors of each region, the spatial distribution wasextremely uneven, no matter in terms of the trade openness or the trade scale, thegrowth rate of trade, the trade structure, the eastern region is significantly better thanthe central and western regions.Analysis of the regional income disparity indicates that, similar to the condition of foreign trade, the regional income also exist a progressively decreasing trend fromthe East to the West, and the decompose of regional income disparity show that theinternal gap of the three major regions is gradually reduced, and the income gapamong the three zones have been the main constitute of regional income gap. Analysisof the urban-rural income disparity indicates that, the urban-rural income gap has alsowidening accompanied by the improvement of trade liberalization, and the decomposeof urban-rural income disparity show that the income gap between the urban and ruralareas has exceeded the internal disparity of inner city and rural areas.Second, we inspect the detailed mechanisms through which trade liberalizationaffects the regional income disparity from such perspectives as industrialagglomeration, factor accumulation and technology spillovers, and so on. Then weconstruct an econometrical model to investigate how trade influence the regionalincome disparity particularly from the two angles of institutional reform andtechnology spillovers. The results show that the imbalances of foreign tradedevelopment among different regions lead to the differences in the revenues of tradeopenness and hence differences in regional income levels. Moreover, the empiricalresults also indicate that the trade openness and its resulting market-oriented reformand technology spillovers have significant positive effect on regional incomes, butdue to the regional differences in trade size and structure, the revenues from tradedisplay a progressively decreasing trend from the East to the West, thereby affectingthe regional income level. Besides, human capital, investment and governmentsupport among different regions all contribute to the regional income disparity.Third, we analyze how trade influences urban-rural income distribution throughthe perspective of commodity prices, industrial structure and foreign investment,respectively. On the basis of empirical analysis，we use a panel data at the provinciallevel to empirically test the relationship between trade liberalization and urban-ruralincome gap. The results show that there exist a nonlinear relationship between tradeliberalization and urban-rural income gap, that’s initially, trade liberalization tends todeteriorate the urban-rural income disparity, however with the further development offoreign trade, such negative effect diminishes. In addition, such factors as education,investment outlays, market-oriented reform and foreign investment all have impactson the urban-rural income gap.Finally, we make some policy recommendations according to the prior theoreticaland empirical analyses, and these policies have profound implications for the coordinated development of regional development and the narrowing of income gapand so on.