Sustainability Of Income Growth And Poverty Reduction In Urbanization

Will China’s urbanization process bring poverty reduction? In this paper, thinking this problem in two ways:first, the nature of China’s urbanization process is the urban-rural dual economic structure transformation determined by the institutional change,and this change will bring sustained growth in urban-rural income. Second, according to the "Poverty-Growth-Inequality" Triangle analytical framework, continuing growth of urban-rural income will bring about two impact on the reduction of absolute poverty:one is the overall rise in income levels so as to drive the growth effect of poverty reduction, the second is to change income inequality situation so as to affect the distribution effect of poverty. If the urbanization process is not interrupted, urban-rural income could continue to rise, and if the aggregate growth effects and distributional effects are conducive to poverty reduction, then China’s poverty will be reduced as the process of urbanization. Conversely, if the urban-rural income stops continuing to grow, so will stop or even reverse the reduction of poverty. Therefore, putting institutional change integrates into dual economic growth model so as to determine the sustainability of urban-rural income growth is the key of the issue.This article attempts to introduce "institutional capital " concept into Todaro model, to make it directly relate to population, so that the institutional factors Born into a binary model of economic growth, in order to interpret China’s urbanization process accompanied by huge institutional change. In the dynamic optimization of the model, we find that as the institutional capital is directly related to population, there is a potential" abort threshold " in economies. When developing countries reach this threshold, dual economic restructuring will immediately stop and revenue growth will be a corresponding stop.Through theoretical model, we can get the dynamic equilibrium of urban and rural per capita income, the proportion of urban and rural population and the unemployed, etc., so as to determine the impact of urbanization process on the mean and variance of urban-rural per capita income, and then determine whether the process of urbanization in favor of the reduction of poverty Theoretical models available:(1) consider the institutional capital, the persistent of urban-rural income growth depends on two potential factors:the long-term dynamic equilibrium point in economies and the abort threshold may faced in short-term. (2) Growth effect come from continued growth in urban-rural income will be conducive to poverty reduction, and the distributional effects it brings uncertainty, but the role of the former will be greater, and therefore the continuing growth of income in urbanization process will benefit cut poverty. (3) When urban-rural income stop growing, either because of the abort threshold t, or because of the completion of dual economic restructuring, the city’s unemployment and rural poverty will exist.On this basis, the paper through data simulation conducts empirical test of conclusion (2) and (3). Empirical results show that:China’s urban and rural areas are the presence of the income effect is greater than the growth effect, therefore, China’s continued economic growth have brought to the urban and rural poverty reduction. As for the abort threshold and revenue growth projections show that in 2035,China’s economy will achieve a dynamic equilibrium, the urbanization rate will reach 68.12%, absolute poverty in urban and rural areas will almost completely remove. Upon completion of the urban-rural dual economic restructuring, poverty also present in small amounts, and the poor will be found mainly in urban rather than rural areas.The first chapter introduces the research background and significance, content and ideas, methods and data sources, the main research object definition, and a brief description of innovation points and shortcomings.The second chapter is a literature review. Of structuralist development economics, institutional capital and institutional structures, poor economics and poverty reduction research, urbanization of poverty studies are briefly reviewed.The third chapter, theoretical analysis. Using income determination mechanism of dual economic theory to explain the interaction between the growth effect and the distributional effects in "PGI Triangle" theoretical framework. From the perspective of China’s urbanization, institutional transformation is the decisive force for urbanization. Introducing the system as a factor of production into production function, proposing the concept of "institutional capital", and making it as an important factor during the analysis China’s urbanization process. In addition, more than 30 years, China’s poverty reductions achieved great success, the number of people living in absolute poverty decline very large. There is a positive correlation between urbanization and poverty reduction, and has two features, one is ongoing rising revenue to promote poverty reduction; Second, while promoting the reduction of poverty, rural-urban income inequality and income inequality within rural areas also continued to expand.The fourth chapter elaborated theoretical assumptions and models. First, proposes urban and rural production functions with institutional capital, and the urban sectors with aggregate economic effect, defines the changes of urban and rural population and labor force, physical capital and institutional capital. Secondly, builds the general form of Todaro model with institutional capital. Achieve an equilibrium of product and factor markets through optimal decision-making behavior of vendors and farmers.On this basis, through dynamic optimization method to explore the equilibrium of the general model.Third, set specific production function and system function, so that made the model specific and find the concrete solutions of dynamic equilibrium.Fourth, dynamic analysis, the first is the steady state growth, unemployment and income inequality analysis, the second is the phase diagram analysis,and graphical display " abort threshold." Finally, obtain three conclusions of theoretical analysis,and conduct comparative static analysis on the parameters of the model.The fifth chapter, an empirical test. First, data collection and collation. Secondly, parameter estimation, through regression get parameters of urban and rural production function, and then get the parameters of institutional capital function in other ways and other parameters. Third, the data simulation. Using the estimated parameters substitute into dynamic optimization equation, conducting data simulation with per capita income of urban and rural areas, and then determine the distribution function of income, the income variance and poverty line standard, resulting simulation data of incidence of poverty and the corresponding of the poor. And on this basis to discuss the relationship among urbanization and poverty, the growth rate of poverty, urbanization and income gap between urban and rural areas, the abort threshold and poverty reduction problems. Finally, verify the theoretical conclusion. On one hand, regression poverty, mean and variance of income to verify the growth effect whether bigger than the distributional effect; On the other hand, verifying whether China’s economy is in a dynamic equilibrium point stop growing, and whether exist urban-rural poverty at that time.The sixth chapter summarizes the main conclusions of this paper, and the subsequent lack of research studies conducted prospects.