Foreign direct investment and income inequality in China

Abstract

This paper examines the impact of foreign direct investment

(FDI) on Chinas income inequality. Two measures of inequality

are used in this study: inequality within the urban community and

the urban-rural income gap. Data covering 25 provinces from

1990 to 2006 are analyzed using the following techniques: fixed

effects, random effects, and system GMM. This study finds that:

(1) FDI significantly increases urban inequality and the distributional

effect of FDI on urban inequality is robust in all the techniques

and different measures of FDI used. (2) there is no evidence that

FDI widens income disparity between urban and rural areas.