Researching On The Relationship Between FDI And Urban-rural Income Inequality

Recent years China has seen great increase in FDI with rising urban-rural income inequality which interests many scholars to make a research over the relationship between them. This paper examines the relationship between FDI inflows and urban-rural income inequality using China provincial panel data from 1990-2012. At first, this paper analyzes the conduction mechanism of FDI affecting urban-rural income inequality from employment structure, industry structure, international trade and glebe price. FDI enterprises create employment for our country, helping our rural labor transfer to urban manufacturing and service industry. As a result, rural labor’s income improves and the inequality becomes less; FDI’s capital is mainly invested in our country’s low-level manufacturing and real estate. They have opposite result for improving income inequality. Real estate’s FDI is not beneficial for improving income inequality, which is different from low-level manufacturing; FDI to our country for the purpose of making use of our country’s cheap labor, importing and exporting labor-extensive product improves income inequality. FDI is focused in eastern provinces in China where labor mobility is smooth helping low-income labor to transfer to high-income areas; FDI also widens income inequality through differential rent and housing price.We find that we should distinguish their relation from different regions. For national level, FDI has significant U relation with urban-rural income inequality. For eastern level, the relation between them is consistent with Kuznets hypothesis. For middle level, they are negatively related with each other, but not U relation. For western level, FDI has no relation with urban-rural income inequality. In addition, the empirical evidence also suggests that the level of economic development, employment structure, industry structure, international trade and human capital are some of the other crucial determinants of urban-rural income inequality. For economic development, eastern and middle data indicates that the relation between gross domestic product per capita and urban-rural income inequality is consistent with Kuznets hypothesis. But for national level, they have no ∩ relation. For western area, they have no relation with each other. The relation between Employment industry and urban-rural income inequality is divided too. They are negatively related with each other for national and middle level. For eastern and western areas, they are not related with each other. The relation between industry and urban-rural income inequality is divided. For national, middle and western level, the primary industry is negatively related with urban-rural income inequality which is different from eastern region. For international trade, they only have negative relation with each other in western region. For other regions, they have positive significant relation. Human capital has the same results at national, middle and western level which indicates positive relation with each other. For eastern region, they are negatively related with each other.