Study On Income Gap Between Urban And Rural Residents From FDI In China

With the gradual progress of economic globalization, FDI had a profound impact on China's economic development when it poured into China. On one hand, FDI in China ease the problem of shortage of foreign exchange and capital, on the other hand, it had a profound impact on the employment of urban and rural residents of provinces and autonomous regions in China. The trend of China's growth rate of income inequality widened year by year nowadays, the academic studies on the topic of impact on the income gap of FDI on the urban-rural income gap has gradually increased too. What's the employment impact on introduction of FDI in China and what's the causing? What is the reason of income gap between urban and rural residents in China and what is the depth of FDI's impact?The paper analyzed the theoretical background and empirical literatures of the academic studies about the impact of FDI on the income, summarized the advantages and disadvantages of the methods used in the studies for China:most of the studies based on the national level, and little to provincial and municipal field; lots of studies used cointegration test and little use panel data mode; more direct effect studies than indirect effects of FDI. Then, I pointed out the research approach taken in this paper: theory combined with empirical research, using panel data, using fixed effects regression model and the empirical coefficient.In theory, this paper summarized five pathways from FDI on the host country income gap, namely:employment, wages pathway; industrial structure pathway; region selection pathway; trade pathway and the pathway of total factor productivity. Then, combined these pathways into China's realistic background, summed up to the factors which influenced the income distribution between urban and rural residents, including:foreign direct investment, foreign trade dependence, GDP, education and economic structural factors. In addition, this paper proposed three FDI theoretical model of urban-rural income gap such as "inverted U hypothesis" theory, the world-system model and the CD function theory.The empirical model of this paper was based on the urban-rural income gap in the FDI transmission mechanism and theoretical model. Empirical study used fixed effects regression test to learn FDI inflows impact on China's overall and the different effects of four regions. Besides, paper used varying coefficient models for sub-samples:foreign direct investment, dependence on foreign trade, domestic production GDP, educational factors, and economic structural factors.The empirical test results show that:FDI inflows is beneficial to the improvement on the income gap between urban and rural residents in China, FDI inflows grew by 1%, the income gap will be improved by 0.046%. Besides, the factors of educational funding and the proportion of second and tertiary industries can increase employment rate, are all conducive to mitigate the income gap between urban and rural residents in China, but dependence on foreign trade and GDP growth are not conducive to regional income gap mitigation. The effects of FDI inflows are different in the eastern, central, northeast and other economically developed cities, FDI inflows are conducive to optimize the income of urban and rural residents, but in western provinces and cities, FDI inflows widened the income gap between urban and rural residents. In the sub-sample empirical results, educational factor plays the most important role, which indicates that there was a negative correlation between educational factors and income gap.Finally, based on the related theoretical analysis and empirical test, raised up feasibility and maneuverability policy recommendations, including raising the quantity and quality of foreign capital, reasonable guiding of the flow of foreign capital, upgrading industrial structure, improving the social security system, implementing the fiscal transfer system and strengthening education and training systems and so on.