Research On The International Trade And Income Disparity

Since the beginning of reform and opening up, China’s economy has made great progress in more than 30 years. However, with the sustained economic growth and per capita income increasing, the income disparity among different groups is becoming widening, which is reflected in overall income, income in different regions and income in different industries. It will bring volatility on economy in the short term and will have negative impact on our economic growth in the long term. As a good way to optimize the allocation of global resources, it is no doubt that foreign trade can fulfill the function of the distribution of resources and income. Thus, the study of relationship between foreign trade and income disparity in China is of great significance both in theory and in practice.Nowadays, with the development of globalization, the original international labor division has been changed and the way of foreign trade has changed deeply. With every country occupying only one or a few links in the production chains of global division, in fact, profuction has come to the stage of global vertical specialization, which makes intra-product trade develop rapidly. In this context, there will be many mistakes and shortcomings if traditional total trade theories and methods are still used.From the perspective of the research on China’s practice, although the research of income disparity has been developed greatly by using traditional total trade method, the impact of foreign trade on income disparity is still a controversial issue. Different scholars make quite different conclusions, or even opposite conclusions. The reasons are that the sample selection may be different, or the different measurement methods are taken, but the major reason may be that the theories and methods are not adjusted with the change of vertical specification.This study aims to clarify the relationship between trade and income disparity from the perspective of theories and methods of trade in value added, and to investigate how the international trade affects China’s income disparity from the theoretical and empirical perspectives. If foreign trade has an impact on the formation of the income disparity, to understand the mechanism of causes and process of this impact and to do the quantitative research will be of great significance to evaluate the impact of foreign trade on our economic development.This thesis will study the impact of foreign trade on domestic income disparity based on the trade in value added theory and calculation method. The research is conducted from three aspects:first,based on China’s foreign trade status and overall income disparity, empirical analyses of the effects of foreign trade on China’s overall income disparity are conducted; second,based on China’s foreign trade status and income disparity in different region in China,empirical research on the effeccts of foreign trade on China regional income disparity is conducted; third, based on China’s foreign trade status and income disparity in different industy, Empirical analyses of influence of foreign trade on China’s income disparity in different industries are conducted. Meanwhile, the results in value added trade results and those in traditional trade are compared.Accordingly, the thesis consists of seven chapters. Chapter one is an introduction. It describes the background, significance of the study, research methods, structure of the thesis, and major innovations. Chapter two clarifies relative definitions. Based on them, this chapter illustrates the theory clues of correlation between foreign trade and domestic income disparity according to classical trade theory, neo-classical trade theory, theory of the new trade theory and the frontier trade development theory. Then, this chapter analyses the effect machanism of foreign trade on domestic income disparity. Chapter Three describes the background, development and accounting models of trade in value added. Then the number of trade and the number of export and import are introduced. Chapter four is the empirical analysis of the effects of foreign trade on China’s overall income disparity. This chapter firstly describes the current situation of China’s foreign trade, including the status of China’s overall foreign trade under traditional accounting methods and under trade in value added. Then,making use of Gini coefficient as an index, China’s overall income disparity is described. Lastly, from the perspective of traditional trade and from the perspective of trade in value added,an empirical study is conducted and relative conclusions are made. Chapter five is the empirical analysis of the effect of foreign trade on China’s income disparity in different regions. This chapter firstyly describes the current situation of China’s foreign trade in East, West and Middle part both under traditional accounting methods and under trade in value added. Then,making use of Theil coefficient as an index, features and trends are explored in income disparity.Finally, from the perspective of traditionaltrade and from the perspective of trade in value added,an empirical study is conducted and relative conclusions are made.Chapter six is the empirical analysis of the effects of foreign trade on China’s income disparity in different industries. Firstly, from the perspective of traditional trade and trade in value added, the current foreign trade situation is described in 19 industries in China. Then, in different industries, the ratio between the max income and min income as an indicator, the features and trends in income disparity are explored. Lastly, from the perspective of traditional trade and trade in value added, empirical results show the effects of foreign trade on China’s income gap in different industries. Chapter seven contains the main conclusions and relative policy suggestions.Based on the theoretical and empirical analyses, the thesis summerizes many beneficial conclusions and policy recommendations as follows:Firstly, no matter traditional trade accounting method or trade in value added accounting method is used to calculate the proportion of import or export trade in GDP, pour U is obtained in the relationship between foreign trade scale and Chinese residents overall income disparity, the relationship between foreign trade scale and income disparity in different regions and the relationship between foreign trade scale and income disparity in different industries respectively. This means that when scale of foreign trade becomes small, the expansion of the scale of foreign trade will deteriorate overall income disparity in Chinese residents, and it will deteriorate inequality in Chinese residents; But after reaching a turning point, expansion of foreign trade will narrow the overall income disparity of Chinese residents and improve their inequality. Thus, at present, the level of foreign trade should be promoted no matter in imports or in exports. While upgrading trade structure is emphasized, scale of foreign trade is also important, which is important for going through the turning point.Secondly, empirical results show that the relationship between foreign trade and China’s overall income disparity is the same no matter either on the basis of traditional trade or on the basis of trade in value added. In 2015, China’s foreign trade situation is on the left side of the turning point, thus, the development of current foreign trade should be expanded in order to narrow our overall income disparity.Thirdly, empirical results show that the relationship between foreign trade and China’s income disparity in different regions is the same no matter either on the basis of traditional trade or on the basis of trade in value added although they both pass the turning point. The expansion of foreign trade is playing an active role in narrowing the income disparity in different area.Fourthly, empirical results show that the relationship between foreign trade and China’s income disparity in different industries is the same no matter either on the basis of traditional trade or on the basis of trade in value added. The expansion of foreign trade is playing an active role in narrowing the income disparity. From the perspective of the traditional trade, in 2015, the real value comes closer to the turning point.Fifthly, the increase of average years of schooling has a significant effect on narrowing of income disparity in Chinese residents, which indicates that through education and training of workers, productivity of workers is improved, and wage income of workers is increased, thus income disparity is narrowing. Therefore, government should increase spending on education, labor training and public health care in order to constantly improve the level of human capital of workers.Sixthly, the lever of free factor movement will narrow the overall income disparity, which means market segmentation will widen income disparity. Therefore, to establish a unified and open market has a positive impact on improving income inequality.Seventhly, capital efficiency will help widen income disparity in our country. The reason may be uneven distribution of capital among different groups in our country, and subjects of accumulation of capital tend to be those high-income groups. Thus, on the one hand, the number of accumulation of capital in high-income groups is absolutely large; on the one hand, when the capital efficiency is improved, the widening of the capital owners and other factor owners is furthered. Therefore, to establish sound capital market and to establish different access to different industries are needed, which will provide the opportunities for low-income class and middle class to gain capital, thus narrowing the income disparity.