The Relationship Between Foreign Direct Investment And China’s Urban And Rural Residents’ Income Gap

Foreign direct investment is an important factor in stimulating economic growthfor China in the past30years, China’s foreign direct investment has been in an upwardtrend, but with the increase of the use of foreign capital, the income gap between urbanand rural residents in China is widening.This article aims to reveal the relationship between foreign direct investment andthe income gap under the open economy, After review research results at home andabroad in these two areas, the paper analyzes that since the reform and opening up,especially since1994foreign direct investment and urban-rural income gap between thechanging circumstances, And analyzes their future development trend.then, in theCobb-Douglas function, we introduce the average level of human capital and foreigndirect investment, combine with the actual situation in China,we make the assumptionfrom a theoretical point of view we prove that foreign direct investment exacerbate theincome gap of urban and rural residents. This paper use panel data of foreign directinvestment and urban-rural income inequality from1994to2009in inter-provincial todo empirical analysis, the last, we use the fixed effects model to do regressionestimation, the results showed that foreign direct investment and the income gapbetween urban and rural residents is positive correlation,that is to say,foreign directinvestment exacerbate the income gap between urban and rural residents, and in thecurrent period,The enhancement of the average level of human capital will lead to awidening on urban-rural income gap.This paper prove the correctness of theoreticalanalysis and assumptions from an empirical perspective.Finally, this paper presents specific policy recommendations in how to effectivelyuse foreign direct investment, as well as how to narrow the income gap between urbanand rural residents. Including to encourage foreign direct investment to flows to ruralareas, Improve the production and export in rural areas, speed up the upgrading of thelevel of human capital in rural areas, and strengthen financial support in rural areas.