Institutional Changes And Economical Inequality In China: 1978-2005

An important issue of Macro-economic is to explain the differences of economic development level between different countries or different regions, that is, why some economies have much higher per capita output than others. Economists had long been aware of that the country has good"institution", such as a country's institutional arrangement can effectively internalize economic externalities, clearly defined property rights and reduce the policy distortions, will have more material and human capital investment, and these inputs to be more effectively produce more outputs. But in the study of the impact of institution and institution changes to long-run economic growth, although the institutional economics emphasizes the institution is the key factor which is decision the long-run economic growth, there is a big bifurcation in definition a good institution, the institutional economics is still lack a complete theoretical framework about long-run economic growth. Since the 1990s the economic growth theory has made considerable progress both in theoretical model and empirical research, but due to the difficulty about measurement institution in empirical research,"institution variables"has not been introduced in economic growth model.China is the only country which successfully establishes socialistic market economy through a gradual reform in the world. Difference with USSR and the former socialist countries in Eastern Europe, which adopt a radical economic transition policy, economic system reform in China has two basic characteristics, which are two-track parallel system pattern and gradual reform with property is Pareto Improvement. So we can quantitative measurement the relative progress in time dimension and relative difference compared with other regions of China's provinces in the process of economic reform. China's practices in reform and opening policy over the past 30 years give us a rare real demonstration sample to understand the role how institution change impact economic growth.This paper considers the economic system reform impacting on the economic growth in China, and attempts introducing the institutional factor in economy growth model. Using Econometric method, this paper researches the relationship between China's institution change and economic inequality in the period from 1978 to 2005. This research will give a reasonable"institutional"explain for the regional differences and urban-rural differences problem in China. One the one hand, this research can provide ideas that ensure "efficiency" and"fairness"at the same time, eliminate the regional differences and urban-rural differences. On the other hand, this paper enriches the demonstration research about the relationship between institution and economic growth, provides a new demonstration to institutional economics and economic growth theory.The main innovation works in this thesis include:①This paper measure the relative progress in time dimension and relative difference compared with other regions of China's provinces in the period from 1978 to 2005. The measure results can be used as the institution variables to express the process of institution change in each province after economic reform. Compares with other quantitative research about institution change and marketization in China, this paper use the conception of relative index to measure the process of institution change both in time dimension and spatial dimension. On the one hand, using data from provincial level avoid the small sample problem that using national level time series data will be up against. On the other hand, using panel data can solve the problem that measuring marketization yearly makes the difference years data could not be compared. The subsequent research in this paper found that the difference of institution change process in time dimension and spatial dimension is the key reason which produces regional and urban-rural economical inequality in China. The different aspect of institution change has differently impact to economical inequality. The reform in finance and government expend is fall behind the institution change in enterprise marketization and openness. The reform of rural land property right institution is stagnant after the reform of household responsibility system.②This paper bases on the textbook Solow model, considering the effect of the reform to the economic growth in China. An augmented Solow model that includes accumulation of human capital and institution variables has been established to investigate the conditionalβconvergence of Chinese cross- province economic growth and the rural-urban inequality in China. The following research using econometrics approach indicates that the model establishing in this paper can reflect the Operation of macro-economy movement. When we include the institution change of China in the model, theβconvergence which can be observed in many other countries will appear in China and the rural-urban inequality can be explained logically.③Based on the economic growth model, a rural-urban two-sector model has been established to study the rural-urban inequality in this paper. The rural-urban two-sector model is a dynamic model, which the lagged dependent variable is on of the independent variables. The following research finds that the reform to establish socialism market economy has not relation with rising of rural-urban inequality. Both the rural economy and urban economy obtain benefit from enterprise marketization and openness. The enlargement of rural-urban inequality is the result of the institution obstacle left from the planned economy and the economic division between rural economy and urban economy. The main factors baffling the development of rural economy include the difficulty of labor and capital flow and the urban-biased economic policies in finance and government expend.④We establish an integrated database about Chinese provinces economies in 1978-2005. Econometric analysis of panel data has been used in this paper. On one side, province-level data enlarge the sample size. On the other side, panel data analysis allow for differences in the aggregate production function across economies. In addition, first-order difference GMM has been used in our research to solve the problem in dynamic panel data model that the lagged dependent variable is correlated with the compound disturbance. The sufficient data collection and rational econometric approach guarantee the dependability of the result.