Education Input，Transaction Costs and Regional Income Disparities

Guan Huijuan; Li Xin; Tan Ying

doi:doi:10.16538/j.cnki.jfe.2019.07.008

Summary

As pointed out at the 19th National Congress of the Communist Party of China, the principal contradiction between unbalanced and inadequate development and the people’s ever-growing needs for a better life faced by the Chinese society has multi-dimensional characteristics. The regional income disparity is an important part of the contradiction. In this paper, transaction costs in the New Economic Geography Theory are endogenous and introduced into the general equilibrium framework, and the main contradiction leading to the unbalanced regional development in China is explored theoretically and tested empirically. The impact of education input on alleviating regional income disparities is also discussed. The results show that: First, the main cause of regional income disparities is transaction costs, rather than human capital accumulation and even industrial agglomeration. Second, when transaction costs are endogenous, there is a consistent conclusion based on the Neoclassical Economic Theory and the New Economic Geography Theory, that is, increasing education input can not only promote the flow of workers among regions, but also reduce transaction costs by promoting technological progress, thereby improving regional income disparities. Thirdly, there is no spatial heterogeneity of education input in alleviating regional income disparities, which can be regarded as a Pareto improvement. However, the impact of education input on alleviating regional income disparities varies at different education stages. In contrast, the effect of the basic education input is more significant. To sum up, increasing education input is an effective way to realize the strategy of coordinated regional development proposed by the 19th National Congress and to ease the principal contradiction in economy and society.