Agriculture Reference
In-Depth Information
cent. In both cases, the real exchange rate increases; but in the present
form of closure the increase is slightly greater (3.0 per cent versus 2.6 per
cent) (Table 6.1).
Ths form of closure gves a smaller welfare gan than the prevous
one because it restrains the gains from trade by fixing the trade balance.
Moreover, it causes an even wider welfare gap. In the previous closure, the
eastern region's share in the total equivalent variation is 88 per cent. In the
current closure, all the gains are absorbed by the eastern region while the
nland regons have a net loss. The gap between rural and urban households
s also lkely to wden. Urban households' share n the total household
welfare gain increases from 79 per cent to 86 per cent (Table 6.1).
Why does WTO accesson worsen regonal dsparty?
To some, it may be surprising, even unacceptable, that trade liberalisation
should lead to worsening regional disparity in China. However, further
analyss may reveal that t s a necessary result.
First, it is a natural extension of the historical trend. As shown in
Figure 6.1, the income gap between China's coastal and inland regions
has been widening since the economic reforms in 1978. Of the three
regions defined here, the richest eastern coastal region has experienced
the fastest economc growth over the past two decades. The average per
capita GDP in the eastern region has increased sevenfold, while per capita
GDP in the poorest western region has increased by less than five times.
Consequently, the gap in per capita GDP between the eastern and western
regions increased from 380.6 yuan in 1978 to 3354.9 yuan in 2000 in real
terms. Ths phenomenon has been well documented by many authors (for
example Wu 1999, Sun 2000, Sun and Parikh 2001 and Jiang 2002).
Second, the regional economies in China are segregated, and this
segregaton s emboded n both factor and commodty markets. The labour
factor market segregaton takes legal form n the household regstraton
system. The general equlbrum CERD model captures ths feature. Because
labour is not freely mobile, wage differentials between regions increase after
the WTO accession, which leads to worsening regional income disparity. The
model assumes perfect mobility of capital, which may not be the case in
