Research On Economic Treansition, Economic Growth And Income Inequality

Average income and income distribution are the key factors that determinate the welfare of a nation. According to classic theory of economic growth and development, average income of the nation depends on its long-run aggregate economic performance to a great extent. Meanwhile, having been proved by historical experience of many countries, long-run economic growth relies on its successful economic transition, which can be seen as accomplishment of the change from traditional Malthus Trap to persistent Modern Balanced Growth Path. Distribution of the economic output is inevitable when the citizens want to share the social wealth, and thus makes the main topic in the economic theory. Different distribution mechanism leads to different income distribution and influences national welfare which are usually measured by income inequality and average income. Considering the national welfare as the one of most important direction of economic research, the main topic of the dissertation is chosen for the relationship of economic transition and income inequality.Will income inequality disappear by economic transition? The question caused the economists’ interest and controversy in theory of income distribution. After surveying the theory and empirical studies in the field of income distribution, we didn’t find the positive answer, which mention us another hypothesis-----many dynamic paths of income inequality, such as "inverted U-shape", "N-shape" and "U-shape", could coexist in the process of economic transition. However, no unified theory so far could merge varies income inequality paths. Another controversy in income distribution theory is that whether income inequality deteriorates economic growth. Similarly, no consistent conclusions have been made in theory and empirical studies. Skilled labors are introduced in economic transition model in this dissertation which offers new perspectives to us for disputing settlements above.Three characters have been marked the process of economic transition:labor migration and industrial evolution, accumulation of human capital and demographic transition. Labor flow and industrial evolution theory believe that the proportion of agriculture output in total output is decreasing and people migrates from rural to urban in the process of economic transition. The theory of human capital accumulation describes the economic transition as the process from the physical capital accumulation to human capital accumulation, and individuals will have more chance to be educated and skilled. Demographic transition, characterized by decreasing mortality and fertility followed by increasing fertility as average income increases, is the process that natural population growth rate increases and then decreases in economic transition. The theoretic framework analyzing the relationship between income inequality and economic growth in this dissertation covered the first and the second characters.Industrial technical progress speeds up economic transition and labor migration from rural to urban. If industrial technology and skilled labor are complementary in the producing process, the quantity of skilled labor in this transitional economy becomes the important factor in promoting economic transition and labor migration. The conclusions show that, given the minimum quantity requirement of skilled labor for the economic take-off, the countries with relative abundant skilled labor are not necessary token off earlier than the countries with relative scarce skilled labor. The necessary condition for the former countries taking-off earlier is that the skilled labor supply needs to be sensitive to skill premium and the industrial technology progress becomes relative faster. The initial skilled labor supply and the industrial progress path may lead the evolution path of income inequality to be "inverted U-shape", "N-shape", "U-shape" and two stage shape in the process of income transition.Furthermore, technical progress structure and skilled labor supply determinate income inequality and income growth simultaneously. First, faster industrial technical progress relative to agriculture technical progress will make income more inequality and the more shortage of skilled labor supply will lead more serious income inequality. Second, both technical progress and skilled labor can promote economic growth. Considering these two prerequisites, we could make conclusion that correlation between income inequality and economic growth could be both positive and negative, and the actual sigh depends on technical progress structure and skilled labor supply. For example, agriculture technical progress, labor-intensive technical progress and the increasing of skilled labor supply will raise economic growth and reduce income inequality, which would make negative correlation between income inequality and economic growth; industrial technical progress and skill-biased technical progress will promote economic growth while rise income inequality, which would cause positive relationship between income inequality and economic growth.Theory propositions in this dissertation have been proved by empirical tests. Using cross-section data in all over the world, this study tests the Granger Causality between income inequality and economic growth. The empirical outcomes show there is simple interaction relationship between income inequality and economic growth. However, after controlling human capital and openness factors, this simple relationship vanished, that is to say that income inequality is not Granger Cause of economic growth and economic growth is not Granger Cause of income inequality. The conclusions demonstrate that income inequality and economic growth are determined by some factors (skilled labor supply and technical progress structure) simultaneously. The empirical work supports the theory in this study and offers feasible policies achieving equity economic growth.The evolution of income distribution function is a convenient tool to analysis the evolution of income inequality and economic growth, for that distribution function could depict both income inequality and average income. This dissertation explore how the relationship between income inequality and economic growth formed by technical progress and skilled labor supply through the method of distribution function, and then apply this method to empirical study of china’s income inequality and economic growth. District income inequality in china is usually dividend by inner income distribution of rural and urban and the income difference between rural and urban. The empirical outcomes find that, firstly, the income difference between rural and urban is the main contribution of over all income inequality in china; secondly, although labor migration from rural to urban deteriorated all over income inequality, it has been changed to the factor reducing income inequality. According the analysis, if the speed of urbanization could be hold in the next decade, the district income inequality will be improved greatly in china.At last, the dissertation estimates china’s rural household income distribution and urban household income distribution using nonparameter estimation method and rural and urban household grouped income data from 1985 to 2006, and then aggregate rural and urban income distribution to get the national income distribution. Through the analysis of the evolution of distribution function, some distribution maps are founded. The first map shows that rural income distribution is not changed significantly. The second map shows that urban income distribution strait to many classes. The last map shows that national income distribution display slight "double humps" which are distinct sometimes and are obsolete in other times. By calculating income inequality measurements using income distribution functions, it’s found that rural income inequality is not changed obviously and urban income inequality increases slowly and national income inequality deteriorate seriously due to income gap between rural and urban residents.