Income Distribution and Dependence on Foreign Trade in China

Due to the rapidly rising ratio of dependence on foreign trade, China's economic growth risk is increasing continuously. This paper analyzes the effect of widening gap of income distribution in china by establishing a simple and applicable theoretical model. The widening gap of income distribution results in shortage of domestic demand, speedy increasing of investment and the internal structural imbalance of economy; and further more, in an open economy, the structural imbalance of economy has brought about a rapidly increasing in exports and imports, making China's ratio of dependence on foreign trade grow quickly. Using the relevant data of China as empirical test, this paper proves that the widening gap of income distribution is the Granger reason of the increasing ratio of dependence on foreign trade. Therefore, taking the efficient steps to narrow the gap of income distribution is the key element to the increase of China's ratio of dependence on foreign trade.