FDI And China's Regional Urban-Rural Income Inequality

FDI is playing more and more important role in the world economically, especially, to the economic development of the host country; the influence expands day by day. Without a doubt, along with economic globalization influence, China domestic reform and open policy deepening gradually, FDI entering massively has also had the huge influence to the Chinese economy development. On one hand, FDI has led essential factors such as the capital, the technology, the management, the network and so on flowing, improved the Chinese comparison advantages and promoted Chinese Enterprise's international competition ability. On the other hand, the influence of FDI to Chinese economic security and social stability is not allowed to neglect, the domestic resident's income division effect initiated by the foreign direct investment's regional distribution, the industrial distribution and superiority resources' attraction is one of them. Since 1986, urban-rural income inequality is growing year by year, which showed that in 30 years, the income gap in China had become into a very unequal income nations rapidly. But, whether there is a relationship between FDI and China's rapidly expanding urban-rural income inequalities? By which channels FDI to influence the regional urban-rural income inequality in China, and what its conduction mechanism is? How to make efficient use of FDI in different regions to improve income distribution in urban and rural areas of China? Research on these issues is of great practical significance to explore the effective use of FDI for China's rapid economic growth, employment and industrial structure optimization, easing regional urban-rural income inequality.The purpose of this paper is to conduct the thorough research and the exploration on How to affect China's regional urban-rural income inequality as well as what kind of influence. Firstly, we analyze the dynamic change of using the foreign direct investment and China's regional urban-rural income inequality, and Based on time series data from 1989 to 2008, using STATA10.0 software and Granger causality test, we research on the relationship between FDI and China's regional urban-rural income gap empirically. Secondly, establishing the mathematical model, we study the impact of FDI on China's regional urban-rural income inequality, further analyzes the conduction mechanism of impact of FDI on the residents' income distribution. Thirdly, based on panel data of the 27 provinces and the autonomous regions of China (excluding Beijing,Tianjin,Shanghai,Chongqing) from 1989 to 2008, using STATA10.0 software, we research on the direct and indirect effects of FDI to China's urban-rural income inequality by SURE and GMM method empirically.We research on the relationship between FDI and China's urban-rural income gap empirically. The results indicate that in the short term, change in FDI for one lagging period expands the current urban-rural income gap, while the changes for two lagging period reduces the current income gap; in the long term, the annual urban-rural income gap will be adjusted to long-term or the equilibrium value at the speed of 1.129; at the three lagging period, there are two-way causal relationships between the urban-rural income gap and foreign investment. Therefore, FDI is an important factor affecting China's urban-rural income inequality.We research on the direct and indirect effects of FDI to China's urban-rural income inequality empirically. The results indicate that Under the condition that other conditions remain unchanged, GMM regression model results is similar to simultaneous equations, that is, attracting foreign investment actively is conducive to narrowing the regional urban-rural income inequality; from the transmission mechanism,, FDI in China narrows the income gap between urban and rural areas by adjusting employment structure, but expand the urban-rural income gap by promoting trade liberalization and adjusting the industrial structure, and the influence of FDI to China's regional urban-rural income inequality by promoting trade liberalization is far greater than the other two channels. From the empirical analysis of the eastern, central and western regions, the impact of FDI on China's urban-rural income inequality in various regions is different. FDI in China is conducive to narrowing of the urban-rural income inequality in the eastern and western regions, but to some extent on, it expanses the urban-rural income inequality in the central region. From the interaction coefficient model, FDI the urban-rural income inequality by increasing the share of secondary and tertiary industries in GDP in the western region, but narrow the urban-rural income gap in the eastern and central regions; narrows urban-rural income inequality through increase employments in secondary and tertiary industries of the eastern, central and western regions; expands the urban-rural income inequality of the three regions by promoting the import and export volume.