Local Government Protectionism And Regional Income Disparity

The impact of local government protectionism on the regional income disparity is an academic and practical issue. The reason why the income gap has long become mainstream economics’emphasis is that it relates to the theory of economic growth and social welfare. The Formation and changes of regional income disparity depend on the regions’economic strength and development modes, and the development modes include local government’s economic and social regulation. Local government protectionism is a typical social regulation which will affect the regional income disparity. Thus, from an economic theory to analyze the correlation between local government protectionism and regional income disparity has a practical and theoretical significance.In economic theory, most studies are based on the analysis framework of neoclassical growth theory, mainly focused on the impact of endowment, economic structure, technological environment, macroeconomic policy and other factors on regional income disparity. However, the neoclassical growth theory is based on the assumptions of perfect competition and constant returns to scale, which makes a lot of studies cannot provide a reasonable explanation to the spatial concentration of economic activity and unbalanced geographical distribution of income, but the analysis framework of the new economic geography theory, which based on the assumptions of increasing returns to scale, imperfect competition and transportation costs, provides a new perspective for us to study the relationship between economic agglomeration and regional disparity. Being based on the center-periphery model in the new economic geography, this paper plan to integrate local government protectionism into this model framework and build an analytical framework for the protection of local government and regional income disparity; on this basis, we want to explain the phenomenon of China’s regional income disparity through empirical research.In the aspect of theoretical analysis, this paper intends to use the center-periphery model in new economic geography to study the mechanism of local government protectionism and regional income disparity through the analysis of labor protection and trade barriers. This paper’s specific analysis of the structure and procedures are as follows: first, sort and comment existing theoretical literature involving local government protectionism and regional income disparities, and examine the experience about the relationship between the two in China; secondly, by the use of the new economic geography theory, make mechanism analysis of the local government protectionism under the system of fiscal decentralization and regional income disparities, and establish related numerical model to explain appropriately; in addition, based on the model construction, make empirical analysis and test the reality of the local government protectionism and the regional income disparities.In the aspect of empirical study, we used China’s provincial panel data from 2000 to 2012, to test the theoretical analysis results. The empirical results show that, (1) local government protectionism in China has a significant impact on regional income disparity. The improvement of local government protectionism will increase regional income level. It proved that, in the current fiscal decentralization system, local governments acquired a certain economic autonomy and tended to adopt protectionism policies to maximize economic interests in the region, which prompted the gradual expansion of regional income disparity to a certain extent; (2) the wide gap of income level among eastern, central and western regions is inseparable from the role of local governments. As the eastern region has higher level of economic development, the local government is more able to take advantage of protecting local market to maintain regional economic interests, thereby resulting in disparities between regional income levels; (3) the effect of local government protectionism on regional income disparity is influenced by the impact of market potential, foreign direct investment, opening of the economy, non-public economy and other macro-economic environmental factors. Indeed, the research done by provincial panel data is likely difficult to fully reveal the reality of local government protectionism and regional income disparity due to data limitations, but it describes or resolves the association of local government protectionism and regional income disparity in a large extent, which will help to broaden and deepen the research in this area.This paper is based on the new economic geography theory to research the relationship between local government protectionism and regional income disparity. Whether in the theoretical analysis aspect or in the empirical research aspect, it is trying to express some views for further study about this research project. As an important economic branch raising in recent decades, new economic geography has made many achievements in the study of regional economic issues, and is an important perspective of theoretical research, but the study of regional economic issues can also get inspiration from other economic theories. If we can further expand the analysis horizon, namely integrate the new economic geography and other economic theories to explore the local government protectionism and regional income disparity, the research on this project might make greater strides.