Study On The Effect Of RMB Exchange Rate Changes On Factor Income Distribution

In July 21st,2005, our country reformed the exchange rate system reform, and carried out a new exchange rate system which based on market supply and demand, and adjusted with reference to a basket of currencies. It was a managed floating exchange rate system and changed the past exchange rate system that RMB floated according to the dollar merely. From exchange reform in 2005, RMB has been on the rise. At the same time, the proportion of workers wage income in the GDP was on the rise, but the proportion of the surplus of business in the GDP presented a downward trend from 2007 to 2014. In this period, the change trend of income share just changed in 2008, this was mainly because of the influence of the financial crisis, and changed the overall economic trends. As a whole, the change of RMB exchange rate was relevant to the trend of wage share and profit share.In the past, the research on exchange rate rarely combined with the income distribution. When evaluating the performance of the exchange rate regime reform, the policy level consider the effect of income distribution. In recent years, the income distribution imbalance problem is significant in our country, it reflects not only in the income gap between individuals, also in factor income proportion. During the economic transformation and development period, the model relies on traditional investment and export is unsustainable, and consumption gradually will be a new economic growth point, which is beneficial to the sustainable development of the national economy. By analyzing the literature of the income distribution, we believe that the exchange rate change has an influence on income distribution.The effect of income distribution caused by the change of exchange rat is complex. On the one hand, there are many factors that affect income distribution, the previous researches that the factors can affect the income distribution mainly include capital output ratio, human capital level, total factor productivity, state-owned economy and tax burden level. On the other hand, exchange rate influence more income distribution through a series of intermediate transmission mechanism. There is a great difference of this transmission mechanism in eastern, central and western regions in China. So income distribution shows different significant degree effects in different areas in China.First, from the perspective of the statistical analysis, this paper shows the correlation of the exchange rate changes and income distribution, and also combines with analysis of China’s exchange rate regime reform process. In theoretical part, it mainly based on some pertinent literature, focusing on analysis of relevant transmission mechanism can affect wages share and profits share, in order to understand the principle that the exchange rate affect income distribution more clearly. In the empirical part, this paper is based on macro provinces panel data in China during 2000 to 2014, and uses the Random Effects Models to verify the real exchange rate of RMB against the dollar affect has an influence on wages share and profits share. On this basis, according to the actual situation of different areas in China by testing mediation effect, analyzes and compares the difference and its reason of effect of income distribution, and explains it. The empirical analysis shows that the appreciation of RMB exchanges rate can improve the wages share and reduce the profit share significantly in China, at the same time, the effect in the eastern region is more intense, the reason is mainly due to there are great differences among foreign trade, industrial structure and foreign investment.