The Discussion On The Mechanism Of FDI's Effect On The Income Distribution In China

This paper has studied the mechanism of income distribution on the basis of three aspects including the FDI's technological spillover, the relationship between FDI and foreign trade as well as the FDI's regional polarization effect. Firstly, the empirical results demonstrate that FDI has brought positive technological spillover. No matter the skill-biased technological progress or the neutral technological progresses, FDI's technological spillover will enlarge the income gap between skilled workers and non-skilled workers in the short run, while in the long term there exists a relationship between technological spillover and the income disparity, which is similar to the inverted U-shaped Kuznets curve. Secondly, the regression analysis indicates that FDI has a remarkable positive impact on foreign trade. But the growth of foreign trade will enlarge the regional income gap and income disparity between the skilled workers and unskilled workers, which could furtherly deteriorate the unfair income distribution in our country. Thirdly, FDI also holds regional polarization effect that will lead to a transfer of mobile factors(labor force and capital) from the western and the middle areas to eastern area, which will raise the price of immobile factors(land). This regional polarization effect will enlarge the income gap in different areas. Finally, considering the real situation in our country, the author proposes some suggestions to avoid the worse situation of unfair income distribution.