A Study Of The Impact Of China’s Foreign Trade On The Country’s Income Inequality

Along with promoting open trade policies, China’s urban and rural residents’ income gap is increasing. According to research statistics, the Gini coefficient from0.25in1978surged to0.46after2000, which in2008reached0.491.According to the National Bureau of Statistics, the Gini coefficient of China in2012was0.474. However, a report from Chinese Household Financial Investigation and Research Center (Southwest University of Finance and Economic) shows that the Gini coefficient of China in2010was0.61, much higher than the global average of0.44. Although the statistical sampling methods had some differences, all of the data are sufficient to show that China’s income inequality has become an indisputable fact.According the theory of international trade and income distribution, to some extent, trade will affect the distribution of income. Based on the actual situation of China’s reform and opening up, intuitively, we have witnessed China’s income inequality increasing along with the gradual deepening of trade liberalization. So, we subsequently produced a series of questions:whether trade liberalization have an impact on income distribution between urban and rural residents in China? If it does, Which way though? Whether it is expanding or narrowing the income gap?Firstly, this paper analyzes the status of China’s trade openness and the income gap between urban and rural residents, the total volume of foreign trade continues to rise, a sharp rise in dependence on foreign trade, while the income gap is widening; Secondly, we have an in-depth discussion about the impact of trade liberalization on income distribution mechanisms and pathways, mainly from trade policy, commodity price mechanism, economic growth, foreign direct investment, industrial structure and government; Finally, we utilizes1985-2012annual time-series data, by means of correlation analysis, ADF unit root test, Johansen cointegration test and Granger causality test, we draw the following conclusions:the ratio of dependence foreign trade, including export trade and import trade, the level of urbanization, tertiary education popularization rate are all Granger causes of Gini coefficient, and they all have positive effects on Gini coefficient, except real GDP per capita. It is noteworthy that, each1%increase in foreign dependence, the Gini coefficient is an increase of52.5%; each1%increase in export dependence, the Gini coefficient will increase by87.9%; each1%increase in import dependence, the Gini coefficient will increase by124.7%.From the empirical results, we find that foreign dependence, export dependence and import dependence are all Granger reason of Gini coefficient; With the improvement of external dependence, export dependence and import dependence, the income gap continue to expand. In other words, exports and imports together widen the income gap between urban and rural areas, and significantly the role of imports much more than exports. Obviously, this is clearly inconsistent with the SS theorem. We have the following three ways to interpret the empirical results. The first, trade liberalization widen the income gap by deteriorating terms of trade index; The second, trade liberalization widen the income gap by widening the wage income of skilled workers and unskilled workers, thereby expanding the income gap between urban and rural areas; The third, trade liberalization exacerbate the income gap between urban and rural areas by speeding up China’s urbanization process.