Research On The Relationship Between Development Of Foreign Trade And Urban-rural Income Gap

Since the reform and opening up of China, China’s foreign trade has made greatachievements. The total amount of China’s foreign trade is about$20.64billion in1978,while it comes to$3.86698trillion in2012. From1978to2012, China’s total import andexport trade keeps up to17.95%of the average annual growth rate. In addition, China’sforeign trade dependence increased rapidly, from9.7%in1978to49.99%in2011, andit peaked65.17%in2006. To be noted, although China’s rapid development of foreigntrade has a positive impact on the economic development, the influences of the highforeign trade dependency on China’s economic security and social stability shouldn’t beignored. The regional difference and attraction to the various advantages of resourcescaused by foreign trade development have already influenced the domestic residents’income distribution. During1978-2012, the urban and rural resident’s income gap ratiois increased from1.86:1to3.13:1, reaching its peaks3.33:1in2007.Throughout literatures on foreign trade development, economical growth andincome distribution, relationship between foreign trade development and economicalgrowth has been given much focus in contrast to that between foreign tradedevelopment and urban-rural income gap; consequently it has a great practical andtheoretical significance to make clear relationship between foreign trade developmentand.This paper reviews the shortages of current relevant literatures and its furtherresearch from three aspects such as data selection, research contents and methods. Ondata selection, the paper chose the period of1990-2010, and breaking it into two periodswhen2001as the node. On contents, three mechanisms, through which foreign tradeaffect urban-rural income gap, were introduced into the model to make up the blind spotin current literatures. On methods, this paper adopted the estimation of system GMMwith IV to estimate robust parameters according to the principles of experimentaldesign.The empirical results show that during the period of1990to2010, thedevelopment of China’s foreign trade has a positive influence on narrowing urban-ruralincome gap. But when taking China’s entry of WTO into consideration, the results turndifferent. Specifically, before China’s accession to the WTO, the development of foreigntrade can significantly narrow the urban-rural income gap; while after joining the WTO, it can enlarge the urban-rural income gap.It’s mainly because the structure and the way of foreign trade have changedfundamentally after China’s entry of WTO. Benefits from Labor-intensive industries tothe rural labor are gradually weakened. On the contrary, the development of the capitaland technology intensive industry has provided better opportunities for technical workerin the city. Besides, it is important to note that no matter from long-term or from theshort terms (before or after China’s accession to the WTO): China’s foreign trade isdeepened by improving the employment structure, which brings more opportunities forthe rural labor force to raise their incomes. To a certain extent, employment structureimprovement is conducive to urban-rural income gap. Therefore, how to narrow theincome gap between urban and rural areas through the employment effect of foreigntrade should be taken seriously consideration.