An Empirical Study On China’s Domestic Market Integration In Transitional Period

Since the implementation of open-door policy in the late 1970s,China has been gradually integrated into the world economy,economic intercourse with other countries(regions) has became more close,and the level of foreign market integration has been greatly improved. At the same time, a lot of facts and studies have found that the level of Chinese domestic market integration is low, even show a non-integrated development trend. An important reason of Low domestic market integration is that China has implemented progressive reform characterized by decentralization which fully mobilize the local government enthusiasm to develop local economy. Meanwhile, the difficulties of the central government supervise local governments conduct making the local government has intrinsic motivation to protect the local economy and to separate regional market.Opposite market behavior from the local government caused the domestic market segmentation is not conducive to sustained, stable and healthy development of China’s economy.With thirty years of rapid economic growth, the level of China’s economic development has reached a certain height,sustained economic growth will increasingly reliance on the domestic and international market which bring us the effect of scale economies.From the view of trade dependence and FDI in China, the degree of foreign market integration has been relatively high, continue to explore the potential of international market has little room.Meanwhile, the way which use the international market to serve for the Chinese economic development is often subject to various disturbances and difficult to follow for a long time.Therefore we should full use of domestic market and take advantage of economies of scale in the domestic market to serve for the Chinese economic development.Although China is the world’s most populous country,the consumtion has been at a low level,the market potential is not been fully development,soChina’s economic growth has been drived mainly by investment and export in the past.Investment needs government finances as a guarantee,or the reason that large-scale investment can not be sustained.Since export has been disturbed and impacted frequently by the international market which make it can not be a enduring power of stable economic growth.The international financial crisis in 2008 which triggered by the United States and quickly swept through the globe is a prime example.After the outbreak of the crisis, many countries have begun to regain the policy of trade protectionism. As the biggest exporter, China naturally become the biggest victims.Thus, in stimulating economic growth troika, only the domestic demand is stable and lasting power. However,in order to play its due role in the economic growth, we must create a unified domestic market as prerequisites. Furthermore, practical experience of developed countries tells us that improve the degree of market integration can narrow the income gap between regions,and will be conducive to realize the goals of a harmonious society. Thus, in-depth study on the integration of the domestic market has great significance.This paper is consisted of six chapters.Chapter Ⅰ:Introduction.This chapter includes the significance and background of the study, the main research methods, the research framework and innovation.Chapter Ⅱ:Literature review.This chapter is intended to provide a theoretical support and research basis for follow-up study, and will sort out,generalize and summarize the literature from three aspects:(1). Review various measurement methods of the degree of market integration and measure results (2)To sort out and summarized Influencing Factors analysis of the degree of market integration.(3) Review variousEconomic Effects analysis of market integration. After sort out,generalize and summarize the literature from the above three aspects,the authors further conducted a review of the literature.ChapterⅢ:Measure the degree of integration of commodity markets and analyze the influencing factors.This chapter use the production method, the price method, the trade method and the demand - Price method to measure the degree of integration of China’s domestic commodity markets.The results of these methods show that China’s domestic commodity markets tends to be integrated during the transition period of twenty years (1992-2011), but experienced twists and turns in the first ten years (1992-2001)and a great improvement in the second ten years (2002-2011). Based on the study of national commodity market integration, the author also analyze the cases of eastern, central and western regions with above methods.It was found that the trend of market integration in eastern, central and western regions is consistent with the national situation in the twenty years.The influencing factors analysis which based on the demand - Price method indicate that dependence on foreign trade, FDI, unemployment, fiscal spending and the level of infrastructure are important factor which influence market integration.The level of market integration has been improved with improvement of FDI and infrastructure, and has been declined with improvement of unemployment and fiscal spending.The level of market integration and dependence on foreign trade Showing an inverted U-shaped relationship.Namely, the improvement of dependence on foreign trade will push the domestic market to segmentation when the dependence on foreign trade is low,while the improvement of dependence on foreign trade will push the domestic market to integration when the dependence on foreign trade has been further improved to reach a certain critical level.ChapterIV:Measure the degree of integration of overall markets and analyze the influencing factors.Theanalysis of China’s overall market integration which based on the economic cycle synchronization method indicate that economic cycle synchronization among 30 provinces show no rules fluctuations.It is said thatChina’s overall market integration is low in the transition period, and have no obvious trend toward integration.The degree of fiscal policy coordination, industrial structure similarity, urbanization differences, differences in economy outward-oriented, geographical distance, whether belong to one region, whether adjacent are influencing factors of economic cycle synchroniza- tion and thus influence the degree of domestic market integration,the most important factor is the degree of coordination of fiscal policy.The improvement of degree of fiscal policy coordination and industrial structure similarity could improve the degree of domestic market integration.If two provinces are adjacent or two provinces belong to one region,it could improve the degree of domestic market integration. The smaller of urbanization differences, economy outward-oriented differences and the geographical distance, the more integration of domestic market is to be.Chapter Ⅴ:Economic effects analysis of the domestic market integration. Domestic market tend to integration could expand market size, promote economic growth and reduce regional income disparities.This chapter find that commodity markets are not fully integrated make the country’s market size declined by 17.33% which Relative to the commodity markets fully integrated. Among them, the market size of the eastern, central and western region has declined 13.77%, 17.52%, 22.57% respectively.Empirical studies of influencing factors of economic growth show that domestic market size which based on the conditions of commodity market integration could promote provincial-level economic growth significantly.This conclusion does not change with the change of control variable,and also does not change with the change of sample.Besides the domestic market size, FDI, dependence on foreign trade, the amount of physical capital investment, technological progress and human capital could also promote the growth of per capita output in provincial-level. In particular, to increase investment in human capital can improve the productivity of labor which can improve the per capita output significantly.However, the increase in labor input could hinder the growth of per capita output in provincial-level.This shows the amount of labor input has been in a stage which the marginal product of labor is lower than the average product of labor.An empirical study of influencing factors of income gap among the provinces indicate that the higher the degree of market integration, the smaller income gap among the provinces. Namely, there is an income convergence effect of market integration.This conclusion does not change with the change in the form of the model.In addition, the provinces which belong to same region could reduce income gap compare with the provinces which belong to difference region.The income gap among the neighboring provinces is smaller than non-adjacent provinces.The income gap will widen with the widen of the difference of education years, the difference of agriculture output to GDP and the difference of urbanization.ChapterⅥ:Research findings, policy recommendations and research prospects. Firstly, summarizes the main conclusions of this paper. Secondly, put forward a series of policy recommendations which based on the conclusions.Finally, pointed out the further research direction of this paper.