The Impacts Of Factor Markets Price Distortions On China’s Economy: Theory And Empirical Analysis

In recent years, macroeconomic imbalance has become a common concern in both academia and the government:the deteriorating income distribution patterns, sluggish consumption, investment overheating, the export slumping, the lack of technological progress, industrial structure failing to achieve the optimization, and so on. Tracing the source, all these problems are inextricably linked with factor markets price distortion, which has seriously affected China’s sustainable development and economic transformation. This dissertation is aimed to clarify the relationship and the mechanism of action between factor price distortions and the macroeconomic imbalance in China theoretically and empirically, so as to provide feasible solutions and ideas for promoting the factors marketization reform and the transformation of economic growth pattern. This dissertation draws the following conclusions:Using C-D production function, we calculated the provincial capital and labor price distortion degrees in China. And we calculated ratio of residential land to industrial land price as the distortion degree of land. Then we constructed models to analyze how factor price distortion affect income distribution. Through theoretical analysis and empirical test, we found that the distortion of capital market is not significant to the labor income share, while the price distortion of labor and land markets have a significant impact on labor income share. The difference between the labor market and land market lies in that the price distortion of labor market will reduce the proportion of labor income, while the price distortions of land market will increase the proportion of labor income, helping to improve the income distribution situation. When governments adopt transfer payments policies to adjust initial income distribution, income distribution gap can be reduced, helping to improve the income distribution pattern.Then this dissertation makes empirical analyses of the impacts of factor markets price distortion on China’s macro economy. Firstly, this dissertation makes empirical analyses of the impact of factor price distortion on consumption. In this part, we construct two regression equations, one including income distribution while the other not. Analysis shows that, in the absence of income distribution of the explanatory variables, the price distortions of capital, land and labor factors have significant impacts on the consumption. The capital price distortion will increase the average propensity to consume, while the price distortion of labor and land will significantly reduce the average propensity to consume. After adding the income distribution as an explanatory variable in the regression equation, the regression coefficients of the market price distortion of the capital and labor factors become smaller, and the value is significant at 1%. It’s verified that the channels of price distortions of factor markets affecting the consumption is that the price distortions of capital and labor markets affect consumption mainly through income distribution. Land price distortions exert direct impact on consumer spending. The impact of factor markets price distortions on investments is that the capital price distortion is not conducive to investments, while the labor market price distortions is conducive to investment. For the labor intensive industries, the impact of the labor market price distortions on investments is greater, while for capital intensive industries, the impact of the capital market price distortions is greater. Capital price distortions is not conducive to FDI inflow, while the price distortions of labor market and land market distortions contribute to the inflow of FDI. For exports, factor markets price distortions are favorable to the increase in exports. For technical progress, factor markets price distortions will hinder the improvement of total factor productivity. For the industrial structure, improving the degree of capital and labor market price distortions will reduce the ratio of added value of secondary industry and tertiary industry, and will also reduce the ratio of output value of the capital-intensive and labor-intensive industry. This part of research is helpful in understanding the mechanism and channels through which factors price distortions exert impacts on the development of China’s macro economy. At the same time, it will provide a new way of thinking for China to change the way of driving growth and promote the upgrading of the industrial structure.Finally, after systematically summarized the research, this dissertation puts forward some proposals and countermeasures to promote factors market-oriented reform, improve income distribution, change the mode of economic growth and promote the optimization and upgrading of industrial structures.