Analysis On The Impact Of FDI On The Regional Income Gap Of China

In recent years, foreign investments attracted by China has been rapidly increasing,especially Foreign Direct Investment, as an integrated body of capital, technologymanagement and other multiple elements plays an increasingly important role in Chineseeconomy. However, in this background, there appears a trend that regional per capita incomegap is widening. Therefore the correlation problem between foreign direct investment and theexpanding gap of income per capita has become the hotspot of research for scholars at homeand abroad. In this paper, the author demonstrates and analysis in detail the effect of FDI onthe gap of regional income with the help of theories of international investment, neweconomic growth, and new economic geography. Starting with analysis on the present statusof FDI distribution and regional income gap, the author explored. In the core periphery model,the four mechanisms of regional income disparities affected by FDI capital formationmechanism, technology spillover mechanisms, system overflow mechanism, and the wagemechanism. Based on these analysis of the mechanism and making full use of panel data andtime series data.the author carries out some tests on impacts of FDI on the regional incomegap in China’s opening regions.As the conclusions show, different distributions of FDI in different regions contribute tothe disparities of income: The eastern regions act as a core has attracted much FDI, while thecentral and western regions are the opposite. The flood of FDI attached to the eastern regionshas increased the income gap between eastern central region and the peripheral region of theMidwest. In view of this situation, this paper presents the following recommendations:rational planning of infrastructure, making the best of limited resources to integratetransportation between cities, enlarging urban cluster size to form scale economy combingmarkets in the east and meanwhile opening markets towards the west in order to achieveregional interaction.In the east, it is advisable to promote industrial clusters to refine socialdivision of laboring. In the western regions, we should take advantages of overseas marketson boundary in Central Asia and open markets to promote foreign trades. In addition, it isbetter to accelerate market-oriented process to promote the development of service industry inthe central and western regions, especially in the financial industry, where a highly efficientoperation can hopefully narrow the income gap.