Study On The Convergence Of Economic Growth And Income Disparity And Their Correlation Research

After the reform and opening up, China’s gradual transformation from a planned economy to a socialist market economy with Chinese characteristics, thus beginning the rapid development of China’s economy. At the same time sharing a high growth rate, it is concerned that unbalanced economic development between regions and income distribution disparity. Therefore, we use provincial panel data from1978to2012and research status of convergence and divergence between China’s economic growth and income disparity, as well as resulting in the widening income gap factors and making economic regional disparity reasons.First of all, this paper reviews the neoclassical growth model of economic growth convergence theory, and introduces the basic principle of MRW model and derivation its mathematical formulas.The data is divided into two periods years of1978-1991and1992-2012, and the provinces is divided into three clubs in accordance with Eastern, Central and Western region. We use panel data to research economic growth absolute β convergence and condition β convergence and club convergence. The results show that exists absolute P convergence between1978to1991and there is no absolute P convergence only the eastern region in the1992-2012year.After adding the control variables, it exists the condition β convergence among Eastern and Central and Western regions, and we find that the accumulation of human capital, the accumulation of physical capital, the technological progress rate and the degree of market and the employment rates have significant effect on the convergence. The club convergence exists only between1978to1991. Then we analyze the convergence of income Distribution Disparity, which its conclusion indicates that there is Chinese income Distribution Disparity is too large, the distribution of income unfair and unreasonable, and there is no convergence of the income disparity whether between urban and rural areas or inner urban and inner rural, whether between different industries or among Eastern and Central and Western region.Finally, we analyze the correlation between economic growth and income disparity. The conclusion shows they both belong to an order of integration panel sequence, and specifically the economic growth is Granger reason of income disparity. After co-integration testing, there is co-integration relationship between them. According with estimation results of error correction model, we chose Pooled Mean Group as the estimation method of national and Central and Western region, and chose Mean Group as the estimation method of Eastern region. Long term coefficient is significantly positive, indicating that economic growth has a convergent effect on income disparity. Short term error correction coefficient is significantly negative, indicating that it exists callback mechanism that pull deviation points to equilibrium relationship in the short period.Through the establishment of the panel simultaneous equations, it shows that the current value of economic growth could have expanded the impact of the current value of the income disparity between urban and rural areas, but its lag value will reduce the current value of the income disparity. In addition to, the accumulation of physical capital, the rate of technological progress, the financial market loan rates and the unemployment rate of urban population will be significantly expanded the income disparity, and the accumulation of human capital and the degree of market can effectively reduce the income disparity. At last, this paper puts forward policy recommendations based on the conclusions.