The Analysis Of The Regional Income Gap Based On Purchasing Power Parity Theory

For a long time, the problem of interregional income gap has been an academic issue.Per residents disposable income is an important index for measuring people’s basic incomeand it is often used to analyze interregional income. However, at present, per residentsdisposable income and the calculation of the income gap are both based on the nominalprice, this paper holds that this calculation method can be improved. Because the pricelevel among provinces is different, the same amount of RMB has different purchasingpower in different regions; so, using the nominal price to measure each region’s incomegap, can’t reflect the region’s real income level, also can’t reflect the real interregionalincome gap. The author focuses on eliminating the influence of price, calculating the trulyinterregional income and the truly interregional income gap.Due to the inspiration of the PPP theory, the paper bases on the theory of purchasing-power parity and we calculate the purchasing power index in different provinces. So wecan eliminate the regional price differences, correct the interregional income, account thereal interregional income and interregional income gap.At first, the author uses theconsumer price index (CPI) as a representative to analyze the price difference phenomenonbetween various regions. Secondly, the author calculates the regional RMB purchasingpower index by using Beijing’s price as a reference and the calculation method ofpurchasing power parity. Thirdly, the author uses the index to correct the regional income,and analyses the revised result. The author uses the data from2002-2010, compares31provinces’(except Hong Kong, Macao and Taiwan) modified interregional income, turnsout that according to the income of developed region in the eastern area, the amount ofvariation is smaller after the correction by RMB purchasing power index; However,according to the income of Midwest region, the mount of variation is larger after thecorrection by RMB purchasing power index. Taken together, after removing the influenceof price by the RMB purchasing power index, the income gap between different regions issmaller.At the end of the paper, the author points out, though the corrected interregionalincome gap is smaller than the the uncorrected interregional income gap, the interregionalincome gap in China has expanded each year and the trend continues. The author indicatesthe reasons for interregional income gap as following: the geographic historical reasons,reasons of policy regime, the uneven development of education and so on; besides, the author provides appropriate policy recommendations as following: accelerating theinvestment adjustment and strategic adjustment, strengthening the education and trainingto improve resident skills, accelerating the development of cities in the middle area.