A Study On The HME And Regional Income Gaps

Since the reform and opening up, China's economy has made great achievements, and people's living standard has improved, but there still exist some problems. Among these problems the most outstanding issue is the difference between China's eastern coastal area and central and western area expands ceaselessly. In view of this problem, many scholars begin to research focusing on the strategy of regional development, and industrial clustering. This paper believes that we can from the Home Market Effect point of view to explain the phenomenon of regional income gaps.Most scholars in China by using the theory of Home Market Effect to study the mode of China's foreign trade, and points out that in order to promote exports China should actively expand domestic demand, and we should change the mode of foreign trade in china. This paper through the theory of Home Market Effect to study China's regional economic development mode, hoping we could put forward effective suggestions for China's regional development strategy.This paper firstly introduces the significance of the topic, as well as the relationship between the Home Market Effect and regional income gaps. Then, the theory of Home Market Effect is introduced. At the same time, we analyzed the Davis &Weinstein in the empirical model, and using this model we took the data of China 2007 31 provinces (due to data acquisition problem, put forward Tibet area, in fact only 30 provinces) 19 industry (divided into 4 departments) output and investment, resource endowment and demand. And we proved that the Home Market Effect exists in our country in empirical, and tested that which mode can decide Chinese provinces production and trade type. Finally, through testing this paper found that the important inference of the Home Market Effect is the income gap between is not enlarged with industrial agglomeration, but the inference of the theory and the status quo of China do not match. This means that the Chinese government formulated about how to reduce the regional income gap policy, can safeguard the vital interests of migrant workers, from another way to control the amplification of income gap. At the same time, we found that the Home Market Effect exist in 8 industry. This means that the government making industrial policy should consider the Home Market Effect of the region. And in combination with the local actual situation, the government formulates a reasonable regional development strategy, so as to improve the allocation of resources efficiency.