On FDI And The Disparity Of Regional Income In China

A great number of FDI inflowing into China,China has become one of the most attracting FDI for successive years in developing countries since China's reform and opening up.At the same time,influenced by geographical location,preferential policies,FDI concentrating in the eastern province of our country,FDI's uneven distribution affects the regional income in our country,and makes it appear larger gap.The formation and change of regional income gap is the result of the regional economic growth difference,while FDI mainly influences the host country or host country interregional economic growth through two mechanisms:one is brought in from the outside as incremental capital directly affects economic growth,the second is external effect and indirect effect through various channels to economic growth.Existing literature on the role of the former has basically reached a consensus,but the effect on FDI externalities needs further research.This paper estimates the contribution of FDI for the formation of regional income disparity in China,and then analyses the mechanism of FDI on the disparity of regional income from an externality perspective.FDI affects regional income disparity through technology spillover,crowding-in investment and industrial agglomeration.The conclusions are as follows:First,the formation and changes in regional income disparity is the difference of regional economic growth results.FDI affects economic growth through capital effect directly and technology spillover,industry cluster indirectly.Second,80%of China's FDI stock is distributed in the eastern region,but the trends of the ratio appears an inverse U curve.The result of Weighted variation coefficient and Theil index shows that the disparity of regional income in China and the distribution FDI both appear an inverted U curve.Third,we introduce the interaction of FDI and human capital.The empirical results show that the FDI affects the disparity of regional income through capital effect and external effect,which contributes 20%of the formation of the disparity of regional income in China.Fourth,we built an endogenous growth model to analyze the mechanism of FDI affecting the disparity of regional income in China through technology spillover effect.The empirical results show that:FDI influences the formation of income gap between regions through technology spillover.FDI is significantly positive.After controlling for FDI and other factors,economic growth appears conditional convergence in China.Fifth,based on the assumption of the heterogeneity of FDI,we apply oligopoly theory to construct a model to analyze of the impact of FDI on domestic firm's decision on investment.The empirical results show that:(1)FDI crowds-in more domestic investment in the central than in the eastern and western.Considered the proportion of FDI,FDI's crowding-in effect decrease gradually from the central,the east and the west.(2)FDI will generate the crowding in effect when the technology gap between the domestic firm and foreign firm reaches the threshold(3)FDI's crowding-in effect varies by different industry.Sixth,industrial agglomeration is also a channel FDI makes influence on the disparity of regional income.This paper uses each province's FDI share as core explanatory variables to carry out an empirical test on FDI's impact on the disparity of regional income through industrial agglomeration.The results show that,after controlling for endogeneity variables such as FDI,FDI had significant effect on the industrial agglomeration in China.The geographical position,the cost of space,human capital and population structure affect the industry agglomeration significantly.Based on conclusions above,we make following suggestions:(1)Alleviating disequilibrium distribution of FDI.This requires countries to increase the central and western infrastructure construction,improve the investment environment.Foreign preferential policies to the central and western tilt,from the system level to guide FDI flows to the central and western regions.(2)Improving labor's quality and ability through training for manager and technical workers..(3),Through improving the financinal environment of small and medium-sized enterprises and reducing the cost of finance,to reduce FDI's market grab effect.