An Analysis Of The Impact Of Economy Open Degree On Domestic Market Integration In China

Since the reform and opening up, China has continuously improved its level of opening up by the way of seizing the favorable international economic environment, vigorously engaging in foreign economic and trade activities, and actively participating in international division of labor and cooperation. China's economic opening-up level has been very high today while there still exists domestic market segmentation. It is apparent that the level of opening up is much higher than that of domestic market integration. This paper uses the panel data of China's 28 provinces and cities from 1995 to 2008 to study the impact of opening up on domestic market integration.The paper first describes the development of China's foreign economy, conducts the index of external dependence,which is equivalent to the mean of foreign trade dependence(foreign trade/GDP)and foreign investment dependence(actual utilization of foreign investment/GDP) to characterize the degree of economic opening up and analyzes the development of China's economic opening-up changes and their regional differences. Then, the paper analyzes the development of domestic integration. It uses the commodity retail price index to construct indicators of inter-regional market segmentation. Finally, after analyzing the mechanism that economic opening up has impact on the domestic market integration, the paper establishes empirical models to study the impact of economic opening up on the development of domestic market integration. The empirical results show that since the 1920s, the level of China's domestic market segmentation has continued declining. The increase of opening up is conductive to the flourishing of domestic market integration, though in the short term, such a catalytic role is not obvious. When the level of economic openness is low, economic liberalization could exacerbate the domestic market segmentation. However, as the increase of opening up, high economic openness is able to boost domestic market integration. Therefore, in order to promote the development of integrated domestic market, much more attention should be paid to further deepen reform and opening-up to enhance region's economic opening-up level and the coordination of regional economic development.