The Analysis About Mechanism On Income Distribution To Current Account

From the90s of20th century, China’s foreign trade had been greatly developed. The extensive and intensive development of international trade was the main reason to the surplus of Chinese foreign trade. However, the favorable balance of Chinese goreign had had brought trade friction among trade parterners and the pressure of appreciation of RMB. The imbalance of China’s Current Account had become not only urgent problem to Chinese Government but also become a composition of Global Trade Imbalance. The imbalance of China’s Current Account was the reflection of China’s internal economic imbalance, as well as, the inequity of income distribution and the income gap between rich and poor had also reduced domestic demond. One the other hand, domestic labour supply had improved the total supply and output. These factors had exaceberated the imbalance of Current Account.This paper had analyzed the relationship between income distribution and Current Account and the original reasons of China’s internal and external imbalance of the economy by summrizing the history of China’s Current Account and domestic inequity of income distribution under the direction of Effective Demand Hypothesis and western international theories and the main influencial factors of Current Account and bilateral trade. The main content of this paper includes the following parts:Firstly, we had analysed the relationships between income distribution and Current Account by analyzing the style facts of China’s income inequity and Current Account and supplied the facts material and the testing foundation for the following theratical analysis. We had provided the macro and micro level datas to find the underlaine meanings of income distribution and Current Account. The empirical analyses had revealed that there were strongly relationship between China’s domestical income distribution and Current Account. The results of this part had also provided facts material and testing basis to the next models building.Secondly, in this part we had established the plentiful models to reveal the internal mechanism between income distribution and Current Account. First, we had introduced the income distribution effects to import demand by defining the overlapping demand between countries and establishing the particial equilibrium framework of the import demand. Second, we had also set up a two countries intertemporal general equilibrium model to analyze the relationship and mechanism between income distribution and bilateral trade. Third, we expanded the basic model by inctroducing the influenceial effects of financial liberalization to the intertemporal consumption and analysed the differential influence to different development stage countries. Fourth, we come back to the classical Keynesian theory and analyzed the influencial effects of decomposition of effective demand deternimned by income distribution by defining the main demand of the total economy. Thirdly, based on the theoratical analysis of the foregoing parts we had analyzed the empirical tests for the theoretical propositions by using different methods. We used China’s provincial panel data to test the relationship between income distribution and import demand. The empirical analysis had shown that income distribution had shown strong negative effects to China’s import demand. Specifically, the exacerbating of domestic income distribution had promoted import demand in eastern areas and restrained import demand in central and western areas. At the same time, we had empirical analysed the effects of income distribution to Current Account from the three aspects:overlapping demand, financial liberalization, and effective demand by using transinatinal panel datas, respectively. First, we used the income distribution overlapping between China and main trade partners and analysed the relationship between income distribution overlapping and bilateral trade flows by using6digits trade commodities based on the cretirial of HS92version. The empirical results had shown that there was the significant positive relationship between income distribution overlapping and China’s import demand. Though, these effects were different in distinct development stage countries, they had shown the same influences among different trading commodities. Second, the empirical results gotten by using the transnational datas had shown that income inequity had presented different effects to import demand among distinct economies and financial liberalization would improve domestic import and expressed significant negative relationship with current account, however, domestic financial liberalization had amplified the effects of income inequity to current account and import demand. Further analysis had revealed under the background of financial liberalization, internal income inequity would improve the surplus of current account in developing countries. Third, the other emprical analysis had elaborated the improvement of income inequity would boost consumption of agents and government and be beneficial to transformation of the model of economic growth. And under the circumstance of appropriate openness to foreign investment market, bettering income inequity would increase the consumption of foreign debts and improve current account. Last, we come back to Chinese economy reality and find the long-term and sustainable effects from income distribution and imlabance of China’s Current Account and the essencial reason were dual-economy regime and specific development model.Surplus of Current Account was a Double-edged sword to China’s economic growth and we should viewed Chinese surplus of Current Account dialectically. The imbalance of external Current Account was the external reflectiong of imbalance of internal economic growth. The future population structure and Dual economic structure had determined extensive economic growth but also cause the inequity of income distribution and imbalance of income distribution. Having the detail understanding of the mechanism between inequity of income distribution and Current Account would be helpful to Chinese economic growth stably.