FUNCTIONAL INCOME DISTRIBUTION, ECONOMIC GROWTH AND TRANSFORMATION IN CHINA

Sa？etak Based on the Bhaduri-Marglin model, this paper establishes an economic model concerning surplus labor supply and credit constraints in Chinese economy to analyze the relationship between the change of the functional income, the economic growth and the transformation in China. Credit constraints have a significant effect on the relationship of the functional income distribution and economic growth. When an economy grows with credit constraints, such as China, it could change from a wage-led growth regime in classical Bhaduri-Marglin models to a profit-led growth regime in our model, and vice versa. Empirical estimation shows that if labor share improves by 1 percent, private consumption will improve by 0.59 percent and it does not have negative effect on China’s economic growth. As a result, if the government could control the opportunity and strength of the economic reform policies which concern functional income distribution, private consumption and investment effectively, China’s economy could transfer to a consumption-led growth path smoothly