An Analysis Of The Impacts From FDI On China’s Regional Income Gap

Since the reform and opening up, FDI began to enter Chinese market, playing an important role in promoting sustained and rapid development of China’s social economic, and it also increased our national income on the whole. However, along with the increasing of FDI scale, the income gap between the three regions in China is also expanding. It is mainly due to the uneven distribution of FDI in this three regions, and the different effect of FDI effecting the regional income. Because the pace of China’s reform and opening up is from east to west, eastern region has the advantage of open policy, geographical condition, human capital and material capital. So it can attracted large numbers of FDI at first, to promote the increase of regional income. And relatively speaking, central and western inland opened later and the degree of opening is lower, so they introduced much less FDI than eastern region. Therefore, from the perspective of FDI increasing regional income, FDI will undoubtedly has some impact on the expansion of regional income gap.This paper reviews the previous theoretical analysis and empirical research on the relationship between FDI and regional income gap. And then, firstly, we analyze deeply the mechanism of how does the FDI affect regional income gap from four aspects, such as industrial structure, employment structure, foreign trade and technology diffusion. Secondly, we analyze the present situation of the practical use of FDI and the regional income gap by using1992-2010data. The data suggests that there are certain relationship between FDI and the regional income gap. Thirdly, we prove that there are causal relationship between FDI and the regional income gap by using Grainger causality test. And then we analyze the relationship between FDI and regional income through measurement model by using the provincial panel data. The estimated results show that FDI Granger cause Theil, but Theil doesn’t Granger cause FDI. FDI has positive influence on regional income, but the influence on the increase of regional income is different between the three regions. Additionally, as mentioned before, the distribution of FDI in the three region is not balanced, therefore the increase of FDI will expand the regional income gap. Finally, we offer some relevant policy proposals to narrow the regional income gap from the perspective of FDI.