Foreign Trade, FDI And The Income Change Of The Urban And Rural Households In China: Mechanism And Evidence

It is an important issue about the Income Change and reasons of the Urban and Rural Households in China. Most of the formerly studies focused on some Endogenous factors, such as the reformation of system, the movement of factors and the spillover of technology etc. But one of the most important exogenous variables is neglected, it is openning-up, especially foreign trade and FDI. Many existing researches found that these exogenous variables are very important causes for Chinese economic growth, they will necessarily impact Chinese income levels and disparity. The main idea of this thesis is to analysis the influences of foreign trade and FDI to Chinese rural and urban household income changes, especially to the change of income levels, income disparity and income structure, by the way of mechanism and evidence.Theoretically, based on the analysis of existing researches, the mechanism of the openning-up and Chinese urban and rural household income change is concluded. Firstly, it examines mechanisms of foreign trade and income change, concludes the four mechanisms: factor prices mechanism, demand preference mechanism, technology progress mechanism and labor market elasticity mechanism. Especially, the factor prices mechanism may be the most important channel, the trade pattern of Chinese mainly exporting unskilled labor intensive manufactures induces the decreasing of skilled labor and increasing of unskilled labor, the income inequality will fall. Secondly, it examines the channels of FDI and income change, FDI can impact Chinese income change by technical spillover mechanism and employment improvement mechanism. In China, the latter is more important.Empirically, the paper using Chinese urban and rural household income related data of 1948-2006, analyzed the relationship among foreign trade, FDI and Chinese rural and urban household income level, income disparity and income structure by next three angles: unit root test, co integration test and the estimation of co integration. At the same time, some variables that can impact income are controlled, such as technical levels and GDP etc. according to empirical analysis, there are three conclusions:Firstly, I find the significantly influence of international trade and FDI on the urban and rural residents' income. With more openning-up, the more amount of urban and rural income. What's more, the influence of FDI is larger than international trade, in both urban and rural regions. opening-up including international trade and FDI have technique spill-over effect, can enhance production technical level and increase residents' income, including the urban residents and rural residents. The empirical results in this paper are consistent to the rhetorical analysis.Secondly, In the long period, the time series empirical results indicate that the influence of openness on the urban is contrary to the rural, it can decrease inequality in the rural region, but increase inequality in the urban region. But in the short period, they have not large difference of influence on the urban and rural. International trade has negative and increasing influence over the urban and rural, while FDI has positive for a short period then negative influence over the urban and rural. We also empirically test the influences of openness over inequality between the urban and rural, the cointegration results indicate both international trade and FDI can mitigate income inequality between the urban and rural. These results are according to classical FPE and SS theorems.Thirdly, these empirical results indicate that international trade has no significant influence over the rural income structure, but has positive influence over the wage proportion in the urban income; FDI has significant positive influence over the wage proportion in the rural income, but can decrease the wage proportion in the urban total income.In brief, this thesis analyzes the mechanism and evidence of the impact of foreign trade and FDI on Chinese rural and urban household income levels, income disparity and income structure. Conclusions show that foreign trade and FDI not only can increase Chinese rural and urban household income levels, but also can decrease the disparity between them, It also bring influence to the income structure of them.