Social Sciences in China (Chinese Edition)

No.2, 2015

The Effect of Opening Up to the Outside World on Income Distribution in China—An Empirical Examination of the Effects of Deng Xiaoping’s Talks Given in His Inspection Tour of Southern China and China’s Joining the WTO

(Abstract)

Han Jun, Liu Runjuan and Zhang Junsen

Opening up to the outside world boosts labor mobility and thus influences income distribution in China, but there are some variations in its effect on the income of different types of workers. We undertake an empirical examination of the effect of opening up to the outside world on income distribution in China, adopting quantile regression methodology and using 1988-2008 micro-level data at the individual and family levels. Two significant events, Deng Xiaoping's talks given in his inspection tour of southern China in 1992 and China's joining the WTO in 2001, are taken as exogenous variables for this calculation. We find that the effect on income variations of opening up to the outside world changes from one period to another, and is totally different in urban and rural areas. In the first stage of opening up following Deng Xiaoping’s talks, the gap between overall incomes and urban incomes decreased to some extent. In the second stage, after China joined the WTO, the effect of opening up on the disparity between overall incomes is not significant. The latter event resulted in a greater gap between high income earners and middle income earners in urban areas, but it also brought about an increase in the incomes of rural dwellers, and thus to a certain extent curtailed the widening of gaps in overall income.