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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 22, No. 3, pp.311-339
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2009
Received 23 Feb 2009 Revised 27 Apr 2009

Foreign Direct Investment and Income Inequality in China

Furong Jin
Doctoral Candidate, Department of Economics, Seoul National University, Seoul 151-746, Korea, Tel: +82-2-336-9291 buyong 9@snu.ac.kr

JEL Classification: D31, F 21, O15, O53

Abstract

This paper examines the impact of foreign direct investment (FDI) on China’s 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.

Keywords:

FDI, China, Income inequality, Within-urban inequality, Urban-rural gap

Acknowledgments

An earlier version of this paper was presented at the Joint Workshop, Seoul National University and University of Wollongong held in Seoul, February 9, 2009. The author would like to thank Augustin K Fosu and Guanghua Wan, and acknowledge financial support provided by UNU-WIDER.

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