A Study Of The Relationship Between Trade Liberalization And Disparity Of Income Distribution In China

Since the reform and opening up policy was adopted in 1978, China has been accelerating the process of trade liberalization, with dramatic tariff cut from 42.9% in 1992 to 9.8% in 2007, as well as elimination of non-tariff barriers. As a member of WTO since 2001, China is developing rapidly in international trade. Meanwhile, the income gap between the rich and the poor is widening, which can be seen from the fact that the Gini coefficient of China has been above 0.4 since 2000. Under the circumstances of deteriorating income distribution, it's meaningful to study the relationship between trade liberalization and disparity of income distribution in China and provide suggestions on improving income distribution from the perspective of trade.Firstly, this paper introduces classic trade theory, such as Specific Factor Model, Heckscher-Ohlin Theorem and Stopler-Samuelson Theorem, and conducts a study of applicability of them in China.Secondly, this paper introduces the process of trade liberalization and income distribution in China. Based on the analysis of theories and reality, this paper discusses the approaches through which trade liberalization affects income distribution in China, which include product price, adjustment of industrial structure, FDI, technological advance and unbalanced trade development of different regions.Thirdly, in order to further analyze the relationship between trade liberalization and the disparity of income distribution in China, this paper gives an empirical study. With Gini coefficient as measurement of disparity of income distribution, and the ratio of dependence on foreign trade as measurement of trade liberalization by correlation analysis, co-integration test and Granger causality test, the paper reaches the conclusion that the ratio of dependence on foreign trade, real GDP per capita, the ratio of employers in primary industry, population growth rate and penetration rate of education are all Granger causes of Gini coefficient, and they all have positive effects on Gini coefficient. Moreover, if the ratio of dependence on foreign trade increases by 1%, then Gini coefficient will increase by 0.073%. If the ratio of dependence on export increases by 1%, then Gini coefficient will increase by 0.062%. If the ratio of dependence on import increases by 1%, then Gini coefficient will increase by 0.065%.Finally, in light of above analysis, this paper provides suggestions on improving income distribution, including optimizing trade mix, speeding up upgrading of processing trade, cultivating talents for future trade, accelerating the opening up of inland areas and exploring more employment opportunities.