Impacts Of Urban-Rural Income Gap On Consumer Demand In China

Consumption, investment and net exports are driving the troika of economic growth, consumer demand is the most basic part in the aggregate demand, it occupies a dominant position.The growth in consumer demand is the main driver of economic growth, in fact, is the fundamental driving force. The speed of a country's economy development, depends largely on the size of consumer demand. In recent years, China economic achieved rapid growth, resident's living standards have greatly improved, but compared to the same level of development in the world, China's consumption ratio is low and has gradually declined. China's reform, from planned economy to market economy transition, is more than 30 years,the transformation of this system coupled with institutional changes, the Chinese people will certainly cause great psychological impact. The widening gap of income distribution and social uncertainty increased in China, the existing supply structure can not meet the consumption needs of residents.This article attempts to start from the income gap between urban and rural areas to study the problem of consumption in China.From the theoretical view, the Western consumer theory does not directly reflect the income distribution gap on the impact of consumer demand, but implicit in the theoretical derivation. From the empirical view, the income distribution gap does affect in consumer demand, then the extent of its impact? its mechanism? This article will be discussed further.As the main line This paper studied how the urban-rural income gap impacts the consumer demand, at first derived the relationship between income gap and consumer demand from the West mainstream consumer theory and build a framework for theoretical analysis, then derived mathematical model about the income gap between urban and rural areas impact on consumer demand, the difference of this model and previous models is:by adding the product terms between per capita income and the income gap, proved that the adjustment of income decreased the income gap and stimulate consumption.In this paper, with the mathematical model I constructed a econometric model to fit China's fact, then constructed a error correction model by using time series data and cointegration tests, got the results:the expanding income gap will cut back consumer demand. While short-term income elasticity of consumption is significantly less than the long-term income elasticity of consumption, on the short term the inhibitory effect of income disparity is relatively large, in the long run this inhibition will gradually decrease, but will not disappear. That increased revenues can reduce the income gap expansion impact on consumer demand from the interaction term about per capita income and the income gap. After 1988 the income raised 10%, the income gap between urban and rural impacting consumer demand reduced 2.69 percentage and could stimulate people's consumption 1.0494 percentage. As to show the differences between regions, I construct the panel model. Through the cointegration test, using the international frontier estimation methods and fully modified least squares method, with the Matlab programming, I obtained the estimate of panel cointegration vector FMOLS and error correction.The conclusions broadly consistent with the above conclusion, but the differences between regions is still very obvious, the conclusions of some provinces is expected to be inconsistent. Then for acting well the government policy must be suited with the local characteristics.The empirical tests proved that the urban-rural income gap impacting on consumer demand has stage and regional characteristics. How to narrow the income gap and stimulate spending? China is a typical "dual economy" countries, in order to narrow the income gap then to stimulate consumption, the key is to increase the income of farmers. The farmers have mainly two source of income:farm income and wage income, but the farm income is main income, the share has been highest, the empirical testing found that the main factors affect the income of farmers is the price of agricultural products. However, if agricultural prices are too high, then the raw materials prices will go up. Therefore, government can provide argricultural subsidies to increase the income of farmers,while can maintain price stability.The social security system is imperfect for rural residents, some farmers are extremely sensitive to the potential systemic risks, such as disease, disaster and so on. Therefore, the Government should increase investment in rural areas, reduce the risk. Another farmers'cultural level are low, the acceptance and understanding for the new knowledge and new technology is also very poor, led to their low productivity.The government can provide technical training, increase their income-generating capacity and way.For urban residents this paper established an adaptive expectations model for different income groups, added factor of spending habits.Use GMM estimates of the panel model can be got the results:for low-income sectors food and clothing has been resolved, but their demand for consumer goods and basic industries have not been fully met, such as:refrigerators, color TVs, washing machines and etc, consumer income-demand elasticity is still very great, rising incomes will increase consumer needs. For the middle sectors and high income sectors the basic industry has basically met the demand for consumer goods, so much of its flexibility, but in entertainment, education and cultural the sensitivity is small. If the goverment could increase funding in this area, then the stimulus will play a significant role in consumption. To tax high-income groups and transfer payments low-income groups,Government could narrow the income gap. For increasing transfer payments to low-income groups, goverment could raise the minimum wage standards, improve their living conditions, in this way stimulate their consumption.while economic growth and restructuring, consumption is not only a means, but also the performance of a strong country. As economic development, income distribution more reasonable, further improve social security, then it will improve consumer spending power.