The Effect Of Foreign Direct Investment On The Industries' Income Gap In China

In the last three decades'reform and opening up of China, Foreign Direct Investment (FDI) played a great role in pushing China's economy growth and development. With economic development, China's income disparity at all levels are showing the trend of expansion, the relevance of foreign direct investment and the income gap in China has become one of the academic focuses. In this paper, we will draw on the theories of the impact of foreign direct investment on income distribution, deduce the mechanism of and establish panel data model to research FDI's effect on the income gap within industries theoretically and empirically.Firstly, this article reviews the foreign and domestic relevant literature, concludes the main factors which affect the industries'income gap and that FDI will influence the labor productivity of industries and also will expand the income gap between skilled and unskilled technical workers.Secondly, this article concludes that the Chinese residents'income level has increased with the continuous inflow of FDI by analyzing FDI and the empirical data of industries'income statement. The income growth pace is different in each industry, and the salary level and the growth rate in the industries FDI swarming into are lower than those industries with less or even absent FDI. In the same time, the expansion rate of the industries'income gap is much larger than the growth rate of each industry's income level. The inflow of FDI enlarges the income gap in different industries.Thirdly, to measure the influence of FDI on income gap in China, this article develops the Cobb-Douglas function depending on a series of premises, deducts and compares the variation coefficients in a closed economy and in an open economy with FDI, and concludes the short-term and long-term effect of FDI on the resident's income gap. Through further analysis we can obtain that the different impact of FDI on different industries'labor productivity leads to the widening income gap within industries, and FDI will expand the income gap between unskilled and skilled labor, which is also partly the reason of industries'income disparity. We even set up PANAL DATA to explain how FDI affect the industries'income in China. We found that the inflow of FDI increases the income imbalance of different industries.Finally, in this article, we present some suggestions based on the FDI policy,income distribution policy and public education policy.