An Empirical Study On The Impact Of FDI To Resident Income In China

In the last two decades'reform and opening up of China, Foreign Direct Investment(FDI) as a macroeconomic variable played a great role in pushing China's economy growth and development. In the same time, the income growth level of the chinese residents reverses the inflow of FDI, while the income gap has the same tendency with FDI. It is a paradox according to the traditional international economic theories and the income distribution theory. New classical economics reckon that in the open economy of the developing countries, the price of the product centralizing technical workers will decrease comparatively,while the price of the product centralizing non-technical workers will increase comparatively. Accoding to the postulate that factors gain the marginal returns against the marginal revenue in the perfect competitive market, the technical workers'income will decrease while the non-technical workers'income will increase and the income gap of both will be narrowed. The inflow of FDI which occulting technical progress will necessarily change the factor endowment statement,the production technology level and the labor effectiveness of the developing country,then bring into increasing the income level of the host counry residents. How to explain the paradox? Depending on the basic thought and tool of endogenous growth theory,this article deduces the endogenesis of technical workers'supply on the premise of the given labor supply, constructs the endogenous labor supply model of the technical workers,verifies the intencity of FDI impacting to the income level and income structure of the chinese residents,tests the interrelation between FDI and the pivotal variables impacting to the residents'income,and explains why China's economic reality deviates from the traditional international economic theories,so that presents the policy suggestions.Firstly, this article concludes that the chinese residents'income growth level has changed in the reverse tendency with the inflow of FDI by analyzing FDI and the empirical data of the chinese residents'income statement. The inflow of FDI slows down the residents'income growth pace. The salary level and the growth rate in the industries FDI swarming into are lower than those industries with less or even absent FDI . We can not give a satisfying explanation depending on the traditional classical theories. In the same time the inflow of FDI enlarges the income gap in different areas,different industries and even in the intra industry of China.Secondly,this article carries an empirical test on the relationship between the residents'income change and FDI to give a rational explanation against the paradox. FDI will show different preferences to the heterogenous labors of the host country because of the occulting technical progress in it. On the premises of full employment and labor supply by a fix exogenous growth rate, the increase of labor demand will lead to the rise of salary. Realistically there is large educated unemployment in China one hand, on the other hand,the incomes of technical workers increase continually with the sustaining inflow of FDI. In the same time,the proportions of the residents'income level and salary level in GDP have degressive tendencies. The deviation of theoretics and reality poses challenges to the traditional trade theory,growth theory and distribution theory. Because the heterogenous labor basing on the resident inter-temporal choice preferences can flow and switch between the technical workers and non-technical workers,the supply of technical workers will turn to a endogenous variable decided by the rewards paid by enterprises,the subsidy policies aroused by government and the inter-temporal preferences chosen by the residents. With the long term's preferences of dense technical employee,the enterprises with labor-saving FDI would rather disburse more to the technical workers though the supply of them was increasing. To narrow the technical gap with the developed countries and make good use of the technology spillover effect of FDI,our govertment would rather implement transfer payments to technical workers and enhance their education subsidies. All these resulted in the incomes of the technical workers outclass those of non-technical workers,and this is why occuring that the residents incomes'changes deviate from the traditional economic theories. This article set up a econometric model to verify the effect of FDI to the resident income basing on the labor-saving FDI with technical progress. The empirical test supports the above hypothesis.Thirdly, to measure the influence of FDI on income gap in China,this article developed the Cobb-Douglas function depending on a series of premises,deducted the variation coeffecients in a closed economy and in an open economy with FDI. Comparing the variation coeffecients,we can learn the short-term and long-term effect of FDI on the resident's income gap. We even set up FEM to explain how FDI affect the Gini Coefficient and the resident's income gap in China . We found that the inflow of FDI worsens the Gini Coefficient's level and increases the income imbalance of different areas.By verifying influence of FDI on the chinese residents'income level and income gap,we prove that in endogenous supply of technical workers,it will bring the changes of the resident income and income gap because the technical workers'income growth with labor-saving FDI character outclass the non-technical workers'. But which intermediate variables are these changes conducted by? According to the factor distribution theory,the influence of FDI on the resident income comes true by changing the capital factor endowment statement,the ratio of capitlal -output and the labor productivity. In the study about influence of FDI on these variables, we establishs the related econometric models to analyse the effect of FDI on employment statement,the whole society's labor productivity and the labor effectiveness. We found that the 1995 year is a breakpoint in the study of FDI and employment. The employment effect is obvious before 1995,but be weaken after the year. The labor-saving technology progress is obvious too. The effect of FDI on technology spillover changes from the level effect to structure effect. In the same time,as a simplex capital factor,FDI affects the whole society's labor productivity negatively while as a vector of technology progess, FDI improve it positively. The degree of influence on the whole society's labor productivity depends on the different technology level of FDI and China's ability to absorb the spillover technology. In this process, the labor effectiveness becomes an important vector. The income of non-technological workers would be severe chronically.The structure effect of FDI on China's resident income is more significant than the growth effect, so it is important to make good use of FDI. In this article,we present some suggestions based on the FDI policy,income distribution policy and public education policy.