FDI、TFP And Urban-rural Income Gap

The urban-rural income gap in China is one of the important topic of economicissues in recent years. Since1998, the China’s urban-rural income gap began to widen,after20years, we became a small urban-rural income gap country is rapidly into a veryunequal income distribution one. According to statistics, in1992, China’s urbanresidents’ per capita disposable income and rural per capita net income were2026.6yuan and784yuan, in2010; they increased to19,109yuan and5,919yuan respectively,an increase of9.43times and7.55times. The urban-rural income ratio increased from1992’s2.585to3.242in2010, an increase of25.42%, and the average annual growthrate was1.27%. Most of the recent researches were focused on several factors in thechanges and influence of China’s urban-rural income, such as the institutional reform,factors’ mobility, foreign investment and the opening policy, but most of them ignoredanother important variable, the total factor productivity. As one of the most importantfactors of economic growth, it likely has some certain of impact to the urban-ruralresidents’ income, as well as their income gap. The idea of this thesis is on the basis ofthe existed researches of China’s urban-rural income gap, to introduce the total factorproductivity, foreign investment and other factors to establish an econometric model, tofurther analyze the problem of China’s urban-rural income gap.Firstly, we made a review about the basic situation of the use of FDI in our countryfrom1992to2010, in the perspective of the overall national level, and divided intoeastern, central and western regions. We especially focus on the absolute and relativeamount of FDI in national level and regional level respectively, and the FDI’sdistributing situation in industries as well. Secondly, starting from the concept of TFP,we used the Malmquist index method to estimate the total factor productivity level ofthe provinces (municipalities) in1992-2010. And then, we analyzed the condition ofChina’s urban-rural income gap, we selected the urban-rural income ratio (Per capitadisposable income of urban residents divide Per capita net income of rural residents) tomeasure China’s urban-rural income gap, so that we can make a comprehensiveunderstanding of income inequality situation. Finally, we introduced two populartheories about the income gap:“the modernization/development” theory and “theworld system/dependency theory”, then we combed the mechanism of how FDI impactChina’s urban-rural income gap, we considered that FDI caused the changes of China’s urban and rural residents in the source of revenue,income structure through wage levelsand the amount of employment, industrial structure, foreign trade, and other factors,finally had an impact of China’s urban-rural income gap. We also did the analysis to thetheory and mechanism of TFP. On the basis, we established an empirical analysis modelon the urban-rural income gap to study how much influence of FDI, total factorproductivity, economic growth, human capital and some other factors to urban and ruralincome gap, and gave some policy recommendations that based on the empirical results.Above all, the main conclusions of this article are as follows. We found that theinverse U-shape curve does exist between FDI and Urban-rural income gap, and most ofprovinces in eastern and central region have transited to the right side of the inverse U-shape curve, but the most of western provinces still in the left side of the curve. TFP canreduce the Income Gap in eastern region, but increased the gap in central and westernregion. GDP Per capita and Income Gap have a U-shape relationship in eastern andcentral region, but the relationship cannot be confirmed in western region. Theeducation level has important affection to the Income Gap, but the increase ofgovernment expenditure and the output value of primary industry can decrease theUrban-rural Income Gap.