Foreign Direct Investment and Urban-Rural Income Inequality: The Case of China

Xu Yang, Clemson University


This paper empirically testes the relationship between FDI and income inequality in different regions in China based on the panel data of 31 provinces from 1985 to 2011. According to the literature review, I built the empirical model. The fixed effect model results show that at one lagged period, FDI on urban-rural income inequality showed a relationship of 'inverted U'. The development of local economy and urban-rural income inequality corresponded to a quadratic relation. The improving level of education and the changes of employment structure exacerbate the urban-rural income inequality. However, the urban-rural income inequality narrowed by promoting the trade liberalization and increasing of total investment in fixed assets. But the influences of all the variables are different in eastern, central and western regions