Theoretical Model And Empirical On How FDI Effect Income Gaps Among People In China

Income gap is en important topic in Economics community in recent years. However Most existing researches focus on issues such as institutional change, factor mobility, and technology spillovers, etc., while ignoring an important variable, which is opening up, particularly international trade and the introduction of foreign direct investment (hereinafter referred to as FDI) or some researches although take the variables such as opening up into account, but the studies only limited to the surface, not the mechanism between these variables which affect income gap. In all, there is lake of a reasonable model to explain the relationship between income gap and FDI.Of income gap, it already existed at the beginning of China's reform and opening up and is influenced by many factors. In the process of China's foreign direct investment growth, the income gap had the same tendency as the foreign direct investment. This shows that in terms of the income gap opening up in China is an important factor. However, according to neoclassical economic theory, this is a paradox. Based on this paradox, the author studied the effects of FDI on the Income Gap starting from the income structure; founding FDI in China has an impact on the income gap. The impact mechanism is:the income=wage income + property income + net business income + transfer income. The first is FDI through the level of higher wages, widening the FDI sectors workers and non-FDI sectors workers; followed by the aggregation effect of FDI generated by the aggregation of the population, thereby increasing rental income of the population of local residents who own the real estate and real estate, pulling income gap; finally brought together by the FDI supply of public goods arising from the implicit transfer payments and widening income gap. In research methodology, this paper adopted a theoretical and empirical research methods combined, based on the theory of international economics, with China's actual situation hypothesis, a conclusion based on the assumption, and then proved theoretically model; also collected data, with the E-Views5.0 software, Excel and other tools of the empirical model.In this paper, the author finally gave policy recommendations.