The Mechanism And Empirical Research Of China’s Domestic Market Integration Under The Condition Of Trade Openness

Regional market integration has become an important way to promote the sustained and steady development of globalization.Especially under the present Sino-US trade friction,the integration of the domestic market is the important impetus to expand the market scale,extend and improve the industrial chain,and achieve the sustainable development of the cycle of economy and trade.In other words,the realization of market integration is the integration of small markets in various regions into open,unified,competitive large markets.The large domestic market can better play the role of the market mechanism and promote the expansion of the circulation of factors,thereby improving the effective allocation of regional and national resources.At the same time,not only can regions can also utilize their comparative advantages and improve their competitiveness,but also the expanded market stimulates industry expansion to form economy of scale,as a result that improvement of social welfare and the avoidance of vicious competition between regions and resulting waste of resources can be achieved.At present,the fragmentation of the domestic market makes it difficult for steady and healthy development in the economy as well as effective resistance of economic fluctuations,and also restricts the realization of the internal and external cycle of domestic economy and trade.And the root of problems comes from the fiscal decentralization system implemented at the end of the last century,which is an important policy cause that leads to the birth of local protection and market isolation.Therefore,from the perspective of continuous opening up to the out-world,it is of great practical significance to study whether the external circulation mechanism can affect the integration of the domestic market and further promote the successful realization of the internal circulation within the country and region.Firstly,by the theoretical analysis of domestic market integration under the condition of opening up,this paper puts forward the theoretical mechanism that under fiscal decentralization,trade opening up can encourage local government officials,on account of influence about promotion,to choose regional market integration.First,by constructing the game model,it is found that,under the central government’s choice of fiscal decentralization,local government officials choose inter-regional competition because of the maximization of their promotion.Then further by the game model,among the competition,local government officials will choose the regional market segmentation or regional market integration depending on inter-regional factor allocation efficiency and economic development level.The further analysis shows that trade opening can accelerate exteriorly the improvement of factor allocation efficiency and economic growth of the region,thus making the integration of regional markets the best choice for local officials.Secondly,on the basis of systematical analysis of the historical evolution and development of China’s domestic market integration,the degree of domestic market integration is measured by the price index.The analysis found that since 1997,(with the exception of a slight decline in 2008-2010)China’s domestic market integration index has generally shown an upward trend.To observe the degree of market integration by region,the central region,the eastern region and the western region rank from high to low.By provincial level,Inner Mongolia,Hebei,Shanxi,Shandong,Hubei,Anhui,Hunan,Shanghai,Beijing and Jiangsu rise faster with a significant increase;Zhejiang,Guangdong,Chongqing,Liaoning,Jilin,Jiangxi,Guangxi,Hainan and Xinjiang remain basically unchanged;Ningxia,Qinghai,Fujian,Gansu,Shaanxi,Yunnan,Guizhou,Sichuan,Henan and Heilongjiang drop relatively fast and significantly.Thirdly,in order to explore the role of the internal causes of fiscal decentralization,by 1997-2016 China Inter-provincial Panel Data,after using the fixed effect model to prove the effect of fiscal decentralization on the local economic competition,the spatial panel data model is used to analyze fiscal decentralization and domestic market integration to clarify the role of economic competition between them.The results show that fiscal decentralization of regions measured by the expenditure index shows a similar enhancement trend.Among them,it includes that the western region increases significantly,the eastern region has the highest degree of decentralization,and the central region is lower than the national average.The fiscal decentralization of the regions measured by the income index fluctuated slightly during the sample period,including the overall region was improved from 2001 to2013;from 2013 to 2016,the decentralization degree of the eastern region improved continuously,while that of the central and western regions decreased.It is further found that in the inter-regional economic competition,fiscal decentralization has a significant positive influence on the integration of the domestic market,which is characterized by decreasing from east to west.In addition,due to the inter-regional spatial spillover effect,the negative effect of fiscal decentralization on market integration will be further intensified with the upgrading of economic competition between local governments,in which the negative regulation role played by economic competition is significant.Fourthly,to further analyze the impact of the accessible external environment on the integration of the domestic market and its extent,Space Durbin Model is selected,combining with China’s provincial panel data from 1997 to 2013.On the basis of the empirical test of how trade opening affects the regional factor allocation,the semi-parametric space hysteresis model is further used to demonstrate the impact of trade opening and factor allocation on market integration.It is found that trade opening has a positive effect of improving the efficiency of domestic regional factor allocation:it’s negative for domestic market integration in the period of low degree of trade openness but when the degree of trade opening gradually increases,the impact of domestic market integration will gradually change from negative to positive,and 0.95 is the critical point at which trade opening changes the influence direction on market integration.In this process,the efficiency of factor allocation can play a positive role in regulating,namely reducing the negative impact of low trade openness on market integration and enhancing the positive impact of higher trade openness.And the results are steady.Finally,in view of the above theoretical elaboration and empirical test results.High-level opening-up is an important means to promote the sustainable development of domestic market integration and maintain the healthy operation of both internal and external economic circulation.For China’s active participation,promotion of deep reform and opening up with still greater depth and in still more areas,it can be seen that FTA building,implement and integration of The Belt and Road Initiative,and high-quality foreign investment not only are reflected in the high-level opening-up,but also drive industrial structure optimization and upgrading by expanding the advantages of market scale and reducing barriers,and can also form industrial agglomeration and cluster,furthermore boost the expansion of the entire industrial chain within and outside the region,consequently optimize the allocation of domestic factors and promote economic growth to achieve the integration of the domestic market with wider scale and deeper level.