Research On The Relationship Between Income Distribution And Middle Income Trap

The income per capita of China is$1000in2001and has increased to$4432. Nowadays, China is facing "middle income trap". The key point of how to avoid the "middle income trap" for China is the income inequality gap.Therefore, this paper is focused on the relationship of income distribution and middle-income trap. It emphases on the following issues:1. Clarify the characteristics and nature of the middle-income trap;2. Explore the reasons for falling into the middle-income trap;3.clarify the relationship between income distribution and middle-income trap;4. Analyze the mechanisms and channels of how income distribution makes a country eventually drop into the middle-income trap;5. Learn lessons of narrowing income gap by comparing the income distribution of developed and developing countries, in order to provide a reference for our country; finally, analyze the potentiality of our country to successfully overcome middle income trap from perspective of income distribution.In order to reach that objective, this paper mainly examines impact of income distribution on different process of economic growth and discusses the relationship between income distribution and middle-income trap according to the principles of "coordination of theoretical model and empirical analysis","echo of qualitative and quantitative analysis","integration of horizontal analysis and longitudinal comparison", and "combination of theoretical and policy research", and based on theories of income distribution and economic growth. Specifically, using the World Development Indicators (WDI) provided by World Band, this paper sets sample standard on the basis of research objectives, apply to some econometrics methods such as GMM, Probit and Logit, analyzes the relationship between income distribution and middle income trap, discusses determines of middle income trap, and analyze the possibility of our country across the "middle-income trap".The main conclusions are as follows:First, the paper finds that although there are several reasons to explain why some countries drop into middle-income trap, yet income distribution is the most critical and important. By comparing the different income distribution situations of developed and developing countries during middle-income periods, the conclusion is drawn that Gini coefficient of countries that are still caught in middle income trap is above0.47and even higher, while that of countries that are successful is between0.25and0.37. With mathematical model and WDI data, this paper confirms that the distribution of income and economic growth to follow the general principle of the inverted U-shaped relationship, but the relationship between them at different stages of economic development is different. It is uncertain to lower middle-income countries, negative to upper middle-income countries, and positive to higher income countries.Secondly, this paper investigates the factors of affecting a country drops into middle income trap by comparing the economic indicators of different countries and binary models. The results show that the larger Gini coefficient, the higher probability a country is caught by middle income trap. The more R&D input and the higher levels of human capital, the likelihood that a country successfully joined into the ranks of developed countries and the coordination of industrialization and urbanization is helpful to overcome middle income trap.Third, analyzing the transmission mechanism of how income distribution leads to a country in the middle trap for a long time, this article was found that those countries with a lower Gini coefficient or successfully entered the high-income economies have sound social stability and a low homicide rate, while the economies of those caught in the middle-income trap is just the opposite. This suggests that the higher the social stability index is, the effect of the distribution of income through social stability on economic growth is positive, the higher the rate of economic growth is, and vice versa; On the other hand, the worse the social security situation is, indicating that the effect of income distribution through social law and order on economic growth will be hindered. Therefore, it is necessary to comprehensively improve the social stability. Specificlly, there are six ways, such as increasing the voice and accountability, enhancing government efficiency, improving the quality of execution of laws and regulations, adhering to the rule of law, intensifying the fight against corruption efforts, ect. This paper may have innovations in the following aspects:(1) This paper attempts to discuss the relationship between the income distribution and middle-income trap, expounds the basic situation of the countries in the middle-income period, and in-depth analyze the impacts of income distribution on middle-income trap, the common factors affecting income distribution, as well as measures taken by other countries.(2) According to the research purpose, the paper sets sample selection standard. With the data resource from WDI, this paper makes an econometric proof of the relationship between income distribution and middle income; meanwhile, the paper uses the binary models to explain the factors affecting a country fall into middle income trap.