Abstract
Purpose The purpose of this paper is to propose policy recommendations that resort to the domestic market to achieve inclusive growth from an open perspective. Design/methodology/approach How will economic globalization based on domestic demand affect economic growth and income distribution in an open and large country? With the aim of discussing the mechanism of the impact of expanding domestic demand on the inclusive growth from an open perspective, this paper incorporates the Global Value Chains vs National Value Chains (GVC-NVC) competition, which is triggered by foreign investments attracted by the domestic demand scale into an endogenous growth model with “Schumpeterian Innovation.” Findings Theoretical analysis indicates the following findings: although domestic demand-based economic globalization can promote transnational inclusive growth across countries, it is not conducive to national (domestic) inclusive growth; the impacting effect of domestic demand scale on inclusive growth across countries is subject to the moderating effect of the development maturity of the labor market; and the impacting effect of domestic demand scale on national inclusive growth is subject to the joint moderating effect of the development maturity of the labor market and labor skill structure. Originality/value First, this paper examines the impact of domestic demand-based economic globalization on the inclusiveness of economic growth from an open perspective, which deepens the existing theory of intra-product specialization and inclusive growth. Second, the paper puts the sequential production process into Schumpeterian growth model and reveals the mechanism that domestic demand affects inclusive growth. Third, the study finds that the enhancement of labor market efficiency, transfer payments to low-skilled labor and the creation of a fair competitive market environment will contribute to the globalization of a domestic demand-oriented economy, which provides a policy-making basis for government sectors.
Highlights
Theoretical analysis and empirical tests reveal the following: domestic demand-based economic globalization is conducive to the realization of transnational inclusive growth, but it is not conducive to the realization of domestic inclusive growth, and the effect of domestic demand-based economic globalization on transnational inclusive growth is subject to the moderating effect of the development maturity of labor market, such that the more mature the labor market and the higher the skill structure of the labor force, the more conducive they are to the realization of transnational inclusive growth, while being unfavorable to the realization of the domestic labor market’s inclusive growth
It has become a government and academic consensus to expedite the development strategy for the second wave of domestic demand-driven economic globalization to adapt to the new global economic situation and the changes in the competitive landscape
The Global Value Chains vs National Value Chains (GVC-National Value Chains (NVC)) competition triggered by foreign investment, which is attracted by the domestic demand scale is included in the endogenous growth model of “Schumpeterian Innovation.”
Summary
Since the implementation of the reform and opening up, China has seized the “decentralization and fragmentation of the production process” and the historic opportunity of the GVC division of labor driven by the MNCs’ “global allocation of value appreciation links.” By implementing the export-oriented economic globalization strategy, China has realized the “explosive growth” of foreign trade (Dai and Jin, 2014), especially commodity trade, and the so-called “China miracle,” which has maintained rapid growth for several decades, thereby successfully completing the transition from the low- to the middle-income stage[3] and becoming the world’s second largest economy. Most of them are either limited by theoretical inferences exploring the reasons to build NVC in the context of export-oriented economic globalization (Zhang and Zhu, 2007; Liu, 2012a, b), how to construct NVC (Zhang and Liu, 2007) or how to leverage the scale of domestic demand to help local enterprises improve their competitiveness in the context of domestic demand-based economic globalization (Brandt and Thun, 2010) and other case studies These studies largely ignore the effect of the expansion of domestic demand scale on inclusive growth in the context of the target market’s transition “from going global to going local,” as promoted by the implementation of domestic demand-based economic globalization strategy, which is exactly the focus of our research. Given the high-skilled labor wage whdt and low-skilled labor wage wldt, the expenditure levels of representative households shall satisfy: Et 1⁄4 whdt H dt þ wldt Ldt : At this point, the demand function of the representative household for the final product is given by: xmit
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