How China Crosses The "Middle-income Trap"

After the World War Two,hundreds of countries and economic entities stepped into the medium income level.With time went through,however,most of them stagnated,waved,even retreated,but never stepped forward into the higher income level.Those countries and regions who succeeded in becoming advanced economies were of really little amount in 20 th century.The World Bank raised the concept of “middle-income trap” for the first time in the study of the “East Asian Rejuvenation: Economic Growth View” in 2006,which suggested that late-developing economy would face two aspects of problems after their entering the medium income level.On one hand,labor costs and resource costs in the country will rising rapidly so that it is very hard to maintain the old growth models.On the other hand,long-term development of "imitation economy" ignores the optimization of human capital structure and the development of technology,which makes the country's advanced technology and innovation unable to achieve the same level of competitiveness with high-income countries.Under these circumstances,the potentiality of economics growth disappears,the growth rate stagnates.And the whole country enters a kind of “trap” of development.The “middle-income trap” has become a hot spot in academic research recently.At the same time,according to the World Bank's classification criteria for national income levels,China entered the ranks of low-and-middle income countries in 1999,and then across the threshold of high-income level in 2010.However,after about 30 years of high-speed growth,China's economy is facing a series of development dilemma currently.One phenomenon is that the GDP growth rate fell to 6.7% in 2016.These aroused the widely concern on how China's economic development would face the “middle-income trap” problem.Under this background,the article studied how the financial system would influence China's crossing “middle-income trap” since the financial system is of great importance to one country's economic development by determining the direction of its reform and decisions.The contributions of this article can be concluded as follow:1.This article incorporated financial factors into the economic growth model,and analyzed the positive effects of financial investment,economic public goods and social public goods on economic growth.Then the article put forward a hypothesis as its first innovation.That is the insufficient development of non-economic public goods caused by defects of the financial system will become the obstacle of China's crossing the “middle income trap” because non-economic public goods are of the same importance as economic public goods are.2.This article studied the impacts of Fiscal Decentralization,Household Registration and official assessment system on the supply of public goods.This part started with extending the existing two categories of public goods into three categories including economic public goods,non-economic domiciliary public goods and non-economic non-domiciliary public goods.Then the article proved that the Fiscal Decentralization would have negative impact on the non-domiciliary goods supply such as social ecological civilization through the empirical method,while the Household Registration would have positive one.These works perfected the existing research system.At the end of this part,this article put forward that the financial system.3.This article proposed Social infrastructure as a new perspective to studies of crossing the "middle-income trap".This article measured the national social capital stock from 1953 to 2014 and the social capital stock of provinces from 2004 to 2014 through the perpetual inventory method.These data make up the vacancies of such data in our country.And based on them,the article made empirical analysis on the impact of social infrastructure on economic development by using differential GMM estimation and vector autoregressive model.The results,again,made up for the lack of empirical researches on the impact of social capital stock on economic growth in China.The experiment results showed that Social infrastructure would have a significant and sustained positive impact on real GDP and future economic growth,which proved the hypothesis mentioned in contribution one.Taking all above into consideration,this article figured out that the proper solution of insufficient investment in China's Social infrastructure would be the key to her "middle-income trap".4.The article analyzed and summarized the advantages and disadvantages of China's financial system,especially of the development of infrastructure.Based on that,the article proposed constructive policy recommendations for China's economic development by combining the experiences of middle-income countries across successes and failures.Trap "has important theoretical and practical significanceThe article is consisted of seven chapters.The first chapter is the introduction,where the research background,content and framework were described.The second chapter is literature review,where researches on the “middle-income trap”,the financial system and the infrastructure development were summarized.There has been large amount of widely research on “middle-income trap”,but none of them were from the perspective of the financial system.In the third chapter,the definition,reference points and causes were discussed.The article first reviewed the World Bank's standard of “trap”,and applied it to several representative countries.Then the article calculated the catch-up indices for these countries and found the CUIs of those who fell into the “trap” also remaining long-term stagnating status.Finally,the article incorporated financial factors into the economic growth model to analyze the reasons of formation of the “trap”.In the fourth chapter,the advantages and disadvantages of China's financial system on crossing the “middle-income trap” were discussed.On the one hand,China's financial system has certain advantages.The article first combined the history of China's fiscal reform and the history of economic development,and found that there was a certain degree of synchronization between them,which suggested the financial system would have a positive impact on economic growth.Then,the fiscal decentralization index was used to quantify the financial system.The empirical results showed that China's current decentralization system had a significant positive impact on economic growth.On the other hand,China's fiscal system has a certain negative impact on the equalization of public goods.The article divided public goods into three categories: economic public goods,household goods and non-household public goods by taking the factors of the Fiscal Decentralization and the Household Registration into consideration.Through the empirical analysis of provincial-level panel data from 2004 to 2014,this article studied the influence of the financial system on non-household public goods.Combined with these results,the article found that China's current financial system had led to the non-equalized development of public goods.Although our financial system promotes the provision of economic public goods,it decreased the investment in non-economic public goods.For the further study on the impact of non-equalized development of public goods on economic growth and crossing the "middle-income trap",the fifth chapter studied the impact of economic infrastructure and social infrastructure on economic growth and found both of them had obvious positive impact on economic growth.However,in the current stage of development,China's investment in social infrastructure lags behind the economic infrastructure.China should increase investment in social infrastructure such as education,health care,science and technology,and ultimately achieve the "middle income trap".However,due to the limited stage of China's current experience,it has only experienced two stages of low income level and middle income level,and the data and empirical analysis of China have some limitations.In order to further verify the hypothesis,the sixth chapter analyzes from the perspective of world economic development.The seventh chapter concluded works above,and proposed policy recommendations from the perspective of the development of financial systems and infrastructure.Firstly,China should reform the current financial system to clearly divide the administration authorities and the financial rights.Meanwhile,Chinese government should constantly dilute the Household Registration to take full advantages of residents' "vote with feet" and "hand to vote" mechanism to promote the equalization of public goods development,to increase education,health care,science and technology and other social infrastructure.China should take human capital and technological innovation as its inexhaustible motivation of economic development,and ultimately cross the "middle income trap".