Empirical Analysis Of Foreign Direct Investment’s Effect On China’s Urban-rural Income Gap

With the gradual progress of China’s economic globalization, it became the largest foreign investment country exceeding America in the world in2002.when FDI poured into China, it had a profound influence for China’s long-term economic development. On the one hand, FDI in China ease the shortages of China’s foreign exchange and capital, on the other hand, it has a profound impact on China’s urban and rural residents’ income. With the rapid development of Chinese economy, income distribution and social inequalities emerges, differences between the rich and the poor in China seem to be increasing, the scope of income inequality is increasing, the degree of income inequality is deepening, China’s gini coefficient resident income expands year by year. Gini coefficient of our country break out0.55, has become one of the largest countries in the gap between the rich and the poor in the world in2011. Today, FDI quickly flows into China, researching distribution effects of FDI on China’s urban-rural residents’income, deeply understanding its impact on China’s income inequality, based on this, advancing and implementing the corresponding policies and measures, has important practical value.In this background, the study of FDI’s effect on China’s urban-rural income gap is very significance.This paper bases on the "inverted U " hypothesis theory, the development of modern theories and the world/attachment system hypothesis, spillover effects and provincical panel data of our country, aims to investigate the specific mechanism and the degree of influence of FDI’s effect on China’s urban-rural income gap and intuitively show the relationship between FDI and urban-rural income gap of the national and regional features, puts forward policy suggestion to promote the coordinated development of each region, hopes to provide reference for the later researchers.The contents of this article are composed of the following five parts: The first part is introduction. This part discusses the background and the significance of this paper, the frame structure, briefly describes the research methods and innovation and insufficient of this article.The second part is the review of literature.In this part, it reviewed the research of domestic and foreign scholars on the relationship between urban and rural residents, this paper has analyzed Chinese Utilization of foreign direct investment and the change of urban and rural residents income gap since China’s reform and opening up, especially after1992, for the study of China, most of domestic and foreign literature is about the national level’s income gap between urban and rural areas, the study of various provinces and cities is very little; In the choose of empirical methods, most choose the time series cointegration test, using the model of panel data is less; More study in the direct effect of foreign direct investment, the study of indirect effect, namely the transmission mechanism is relatively little. This paper uses the theoretical research combined with empirical research, chooses the panel data of various provinces and cities and uses fixed effect model to solve above problems.The third part is theory analysis of China’s FDI and the condition of urban and rural residents income gap, it mainly analysizes the causing of income gap in China, classical theory of the income gap and the conduction mechanism of FDI influencing income gap and so on. On theoretical study, through the study on transmission mechanism of foreign direct investment (FDI) affecting urban and rural residents income gap of our country’s, considering the "inverted U " hypothesis theory, the development of modern theories and the world/attachment system hypothesis, spillover effects, combined with the reality of our country, we can find in different periods and regions of China, different theories can be used to explain China’s income gap between urban and rural areas.The fourth part is the empirical analysis. In this paper, the empirical research selected panel data, the results of panel data show that:varying the transmission mechanism of FDI on the income gap between urban and rural areas in the process of theoretical analysis, using fixed effect model to simulate, we can find that the inflows of FDI, as a whole, has widen the income gap between urban and rural areas in China, but the impact was not that significant, and the effect is different in different regions, the influence on the eastern regions is positive, while on the middle and western regions, it was negative, among which the most negatively affected are western regions. Therefore, in order to minimise the negative impact of FDI inflows on income gap between urban and rural areas, western region whose education level is relatively backward should develop education, improve the level of education, and eastern region should actively attract rural workers into the second industry and the tertiary industry.The fifth part is the policy recommendations, on the basis of relevant theoretica1analysis and empirical test, we can find that foreign trade and FDI have expanded t he income gap between urban and rural areas in our country at this present stage. So me corresponding policy should be taken to shorten the urban-rural income gap, in o rder to make the market environment of foreign trade and attracting FDI more and more complete, and improve the condition of the urban-rural income gap. In the process of introducing foreign capital, we should reasonably guide the flow of foreign capital, encourage foreign investment to flow to regional differences; Increase investment in education, popularize knowledge of science and technology, provide skill training, prompte low-skilled workers turning into high-skilled workers, the greatest degree to meet the need of the development of our country’s economy; Upgrade the industrial structure, and guide foreign capital inflows to the third industry; Formulate corresponding policies to encourage rational flow of China’s regional workers, engage the laborers in agricultural production transferring to non-agricultural production department and engage the first and second industry workers shifting to the third industry, in order to improve the rural laborer income and narrow the income gap of urban and rural residents.In this paper, innovation points are as follows: Firstly, perspective innovation. According to current research, many scholars tend to learn about this topic from an overall perspective of China, but there are few researches learning about income gap between urban and rural residents from the province aspect. In this paper, I used the data about last20years in29provinces and autonomous regions, and analyzed the impact of FDI inflows on the income gap between urban and rural areas.Secondly, the research approach innovation. At present, among the studies on the impact of FDI on China’s income gap, mostly are studying about the role of FDI on the income gap in direct ways, and few are learning from an indirect side. And many are just learning about the effect on incomes of regions and ignored other factors (such as the impact on incomes of regional openness to outside) caused by the FDI. In this article, I started from the Chinese provinces and autonomous regions with the panel data to study about the transmission mechanism of FDI influencing the income gap between urban and rural residents in China.In this paper, there are many deficiencies. First of all, in this paper, I used the urban-rural income ratio as indicators to explain China’s urban-rural income gap, and ignored the inside factors effecting the rural and urban income gap, therefore, there may be improvement on the measurable indicators. Secondly, this article selects students of higher education institutions accounting for the proportion of the area total population for education indicator, the index can not accurately measure the education level of our country. Finally, constraint by the article length, I did not explain all of the variables in the model space and analyze from each variable aspect of the effects of FDI on urban-rural income gap from different directions.