The Research On Mechanism Of Income Distribution On Economic Growth

Economic growth and income distribution are two important economic subjects. After the presence of the theory of endogenous growth, more and more economics put their eyes on the dynamics between inequality and growth. China has achieved great progress in economic growth during the past twenty years after Economic Reforms and the inequality increases at the same time. Therefore the studies on the relationship between distribution and growth of China are very important.Overseas studies about distribution and growth are extended in two aspects, one is the long-term fluctuation trend of inequality in economic growth, the other is the effect of income distribution on economic growth. Domestic economists pay attention to the fluctuation and course of inequality and applicability of Kuznets hypothesis in China. There are few studies about the effect of distribution on growth and the mechanism between them. This article is based on the survey of the relationship between the two subjects in modern Western economics. Discuss of mechanism between inequality and growth, analysis based on the data of Chinese economic growth are also included.Theory of inequality and growth, empirical studies and frame of the article are spelled out in section I . Section II presents models of endogenous growth. Mechanism between inequality and growth lie on three aspects, financial media, investment in human capital and distributive politics. The emergence and development of financial media give a good explanation for Kuznets hypothesis. "Inequality is harmful for growth", the conclusion is supported in human capital investment and distributive polices. Section III uses empirical data to test the models. We got empirical results that show inequality is negatively correlated with economic growth with human capital and distributive policies as medians. Cross sections in 1995 and 1998 indicate a significant and large negative relation between inequality and growth. Section IV put forward some politic suggestions.The innovations of this article lie in four aspects. Firstly, study the course of growth in a new angle, i.e. inequality, and analysis the endogenous dynamics of inequality on growth. Secondly, use the development of financial media to explain Kuznets hypothesis, comment on models under different education systems and median voting. Thirdly, use Chinese economic data from 1978 to 2000 to test the mechanism. Fourthly, present a country sample for "inequality is harmful for growth" with empirical study of Chinese cross section data.