Income Gap And Markup Of Manufacturing Firms In China

With the deepening of reform and opening up,Chinese drastic economic development has attracted the attention of the world,but at the same time,the widening income gap has become an important issue restricting the sustained and stable development of the economy.The widening income gap leads to a lack of long-term consumption demand,which decreases the innovation activities of firms and reduces the competitiveness and profitability of firms.And firms’markup,as an important index to measure the profitability and competitiveness of firms,may be affected by the income gap.Therefore,using China’s industrial firm database,this paper empirically examine the relationship and the mechanism between the income gap and the markup of manufacturing firms,and get the relevant conclusions.First of all,This paper makes a simple combing on the relevant literature,and on this basis,makes a theoretical analysis of the relationship between the income gap and the markup of manufacturing firms,that is,the income gap from the demand scale "market scale effect" and"price effect" on the firms’ innovation activities,and then act on the markup of firms.Secondly,this paper gi’ve a brief description and analysis of the spatial distribution of income gap.Overall,the national income gap is on the rise;specifically,the income gap in the east is significantly lower than the central and westerm regions and the national average,and the income gap is increasing in all regions.At the same time,this paper measure the firms’ markup,and analyzes the firms’ markup in different years,different industries and different regions.The results show that the firms9 markup is rising first and then decreasing and then rising,and the firms5 markup is higher in high monopoly industry,while the firms’ markup in labor-intensive industry is lower,the firms’ markup in eastern region is the lowest,the second in the west and the highest in the middle.Finally,this paper use the panel data model to carry on the empirical analysis,finds that there exists an inverted U-shaped relationship between income gap and markup across firms,and the turning point of the Gini coefficient is 0.363;However,the Gini coefficient in most areas of China is in the downward phase of the inverted U-shaped curve,that is income gap has significantly suppressed the rise in Firms’ markup.The suppressing effect is more conspicuous for state-owned firms,domestic firms,monopolistic sectors,low-tech industries,and the central and western regions.The mechanism examination shows that innovation is the channel through which income gap affects markup across firms.According to the theoretical analysis and empirical examination,this paper advise the government should accelerate the reform of income distribution system in order to narrow the income gap and increase the scale of demand,and then promote the improvement of innovation level and markup of Chinese manufacturing firms.